csfb annual report 2019-2020

ANNUAL REPORT

2019-2020

To provide superior banking service,

focused on customers’ needs.

To contribute to the economic development

of the area through innovative ideas,

technology and new products.

To maintain a long lasting and trustworthy

relationship with the local community.

OUR VISION

CONTENTS

► Corporate Information 02

Board Committees 03►

► Financial Highlights 04

Managing Director's Note 05►

► Product & Services 07

► Directors' Report 08

Secretarial Audit Report 42 ►

Management Discussion & Analysis 45►

Independent Auditor's Report 48►

Annual Accounts ►

- Balance Sheet 55

- Prot & Loss Account 56

- Cash Flow Statement 57

- Schedules 58

- Signicant Accounting Policies 64

- Notes on Accounts 70

Our Partners 100►

► Our Network 101

CORPORATE INFORMATION

Managing Director &

Chief Executive Ofcer

Sarvjit Singh Samra

Chief Operating Ofcer &

Chief Financial Ofcer

Munish Jain

Company Secretary

Amit Sharma

Directors

Dinesh Gupta

Srinath Srinivasan

Mohit Verma

Mahesh Parasuraman

Rahul Priyadarshi

Rakesh Soni

Harmesh Khanna

Sham Singh Bains

Gurdeep Singh

Gurpreet Singh Chug

Navin Kumar Maini

Chairman (Part Time)

Madan Gopal Sharma

Auditors

MSKC & AssociatesFormerly known as R.K.Kumar & Co.

Chartered Accountants

Mumbai

RTA

Link Intime India Private Limited

C-101, Ist Floor, 247 Park,

Lal Bahadur Shastri Marg,

Vikhroli (West)

Mumbai-400083

CDSL

Marathon Futurex,

A-Wing, 25th Floor,

NM Joshi Marg,

Lower Parel (East)

Mumbai-400013

NSDL

Trade World,

A-Wing, 4th Floor,

Kamala Mills Compound,

Lower Parel,

Mumbai-400013

Debenture Trustee

IDBI Trusteeship Services Ltd.

Asian Building,

17-R Kamani Road,

Ballard Estate, Fort,

Mumbai-400001

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BOARD COMMITTEES

Management Committee

Sarvjit Singh Samra

Harmesh Khanna

Rakesh Soni

Gurpreet Singh Chug

Dinesh Gupta

Audit Committee

Madan Gopal Sharma

Rakesh Soni

Gurpreet Singh Chug

Dinesh Gupta

Credit Sanctioning Committee

Sarvjit Singh Samra

Gurdeep Singh

Dinesh Gupta

Risk Management Committee

Dinesh Gupta

Rakesh Soni

Harmesh Khanna

Gurpreet Singh Chug

Stakeholders Relationship Committee

Dinesh Gupta

Navin Kumar Maini

Gurdeep Singh

Sham Singh Bains

Special Committee on Frauds

Madan Gopal Sharma

Sarvjit Singh Samra

Harmesh Khanna

Navin Kumar Maini

Gurpreet Singh Chug

Nomination and Remuneration Committee

Rakesh Soni

Sham Singh Bains

Gurdeep Singh

Gupreet Singh Chug

Securities Committee

Dinesh Gupta

Sham Singh Bains

Gurdeep Singh

Corporate Social Responsibility Committee

Sarvjit Singh Samra

Rakesh Soni

Sham Singh Bains

Gurdeep Singh

IT Strategy Committee

Gurpreet Singh Chug

Sarvjit Singh Samra

Munish Jain (Ofcio Member)

Vishal Madan (Ofcio Member)

Vimal Kumar Kamal (Ofcio Member)

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FINANCIAL HIGHLIGHTS

28.5

FY 2017

23.8

36.744.5

FY 2018 FY 2019 FY 2020

INR

BN.

DEPOSIT

CAGR 23%

48.447.248.448.2

FY 2017 FY 2018 FY 2019 FY 2020

INR

MN

.

FY 2017 FY 2018 FY 2019 FY 2020

NIM

6.0% 6.1%5.5%

3.1%3.5% 3.5%3.5%

5.6%

40.0%39.2%

FY 2017 FY 2018 FY 2019 FY 2020

CASA

39.9% 37.7%

57.6%

71.1%

FY 2018 FY 2018 FY 2019 FY 2020

65.0%

74.8%

18.5

FY 2017

26.1

33.3

FY 2018 FY 2019 FY 2020

INR

BN.

13.7

CAGR 34%

ADVANCES

INTEREST SPREAD & NIM

328.4231.8

344.9

522.6

INR

MN

. CAGR 22%

FY 2017 FY 2018 FY 2019 FY 2020

OPERATING PROFITNET INTEREST INCOME

1044740

13511762

INR

MN

. CAGR 23%

FY 2017 FY 2018 FY 2019 FY 2020

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MANAGING DIRECTOR'S NOTE

Dear Shareholders

It is indeed my honor to share with you the state of affairs and performance of the Bank. The Bank has responded efciently to tackle the unforeseen event of COVD-19 and is committed to grow at a fast pace while managing risks efciently.

The COVID-19 pandemic has negatively affected the entire world. This has disrupted the global supply chains and international trade. With most of the countries closing national borders, the movement of people and tourism have come to a screeching halt. The severity of the economic impact will largely depend on two factors; the duration of restrictions on the movement of people and size and efcacy of scal responses to the crisis by major economies.

The global economy could plunge into a deep recession. Governments are considering and rolling out large stimulus packages to avert a sharp downturn of their respective economies. Urgent and bold policy measures are needed, not only to curtail the pandemic and save lives, but also to protect the most vulnerable in our societies from economic ruin and to sustain economic growth and nancial stability.

Banking services in India are classied under the essential services list. Banking and nancial institutions are under immense pressure to ensure business-as-usual amidst the lockdown and health crisis. Banking services are being provided by maintaining a safe social distance and this shall continue till the situation is under control.

Capital Small Finance Bank has built its business model around the concept of nancial inclusion and rmly believes in discharging its corporate social responsibility by providing world class banking services at affordable cost to its ever increasing clientele. The Bank is providing safe, efcient and service oriented repository of savings to the local community while reducing their dependence on moneylenders by making need based credit easily available.

The Bank is witnessing exponential growth in every sphere of business and performance. The branch network has increased from 47 on the eve of conversion to small nance bank to

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“

”

Capital Small Finance Bank

has built its business model

around the concept of nancial

inclusion and rmly believes in

discharging its corporate social

responsibility by providing world

class banking services at

affordable cost to its ever

increasing clientele.

150 as on March 31, 2020. The total business of the Bank has increased from 2,963 Crores as on March 31, 2016 to 7,772 Crores as on March 31, 2020. The Bank is successfully catering to its client base spread over in Punjab, Delhi, Haryana, Rajasthan and Union Territory of Chandigarh. The Bank has grown in credit heavy geographies and locations to augment its credit growth and as a result has increased its credit deposit ratio from 60% to74%.

Capital Small Finance Bank is built on the pillars of trust and performance, and continues to upstage ethical and professional conduct for sustainable development. To sustain growth, countries and corporates need to invest in people, foster inclusive growth, and build resilient societies. The Bank envisages to provide quality employment opportunities to localities with fast track career growth and development

The Bank and its whole team continuously strives to set highest standards of corporate governance, ethical business practices and maintain highest order of professionalism in providing various nancial services. The bank is fullling its aim to make banking experience a delight for its various stakeholders.

I extend my gratitude to all the stakeholders for their condence and uninching belief in our ability to deliver value. I would like to take this opportunity to reiterate our commitment to work towards meeting your high expectations and take your organization to the next level of growth.

Lets together build a great institution.

Sarvjit Singh Samra

Managing Director

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PRODUCT & SERVICESDeposits

Savings

Capital Small Finance Bank's Savings Account is just the right product for everyone, salaried or self-employed, high net worth individuals and NRI's. The unmatched package of Capital Small Finance Bank Savings Bank Account brings the benets of better, efcient and hassle-free banking, depending upon the customer needs. The Bank offers following saving accounts as per the requirement of the customers.

• Normal Savings Account

• Capital Savings Account

• Capital Saver Savings Account

• Capital Super Savings Account

• Basic Saving Bank Account (Suvidha Bachat)

Current

Money transactions are at the heart of most business relationships. Your bank's support and services can make all the difference in closing a deal, and maintaining goodwill with business associates.

• Normal Current Account

• Capital Current Account

• Capital Plus Current Account

• Capital Premium Current Account

• Flexi Current Account

Term Deposit

Just as each little drop matters in lling a bucket, similarly little saving today yields better results tomorrow. Term Deposit account of the bank can be opened with a minimum amount of Rs. 1000/- under various schemes.

• Cumulative Deposit Account

• Short Term Deposit Account

• QIDS Account

• MIDS Account

• Tax Saver FD

• Recurring Account

Forex Services• Sale of Foreign Currency

• Purchase of Foreign Currency

Loans• Housing Loans

• Personal Loans

• Auto Loans

• Gold Loans

• Kissan Credit Cards

• Scheme for MSME

• Education Loans

• Financing to Commission Agents

• Advance Against Rentals

• Advance against Preowned Vehicle

• General Credit Card Scheme

• Mortgage Loans Against Property

• Advances for construction/Real Estate Projects

Money Transfer

Capital Small Finance Bank extends the services of receiving money from friends and relatives in over 200 countries in the fastest possible way. For this purpose we have a tie-up with Western Union Financial Services Inc., Money Gram Inc. & Ria Money. Western Union, Money Gram & Ria Money are global leaders in money transfer and message services, with a history of pioneering service dating back to more than 100 years. Consumers can quickly and easily transfer money through Western Union and Money Gram agents located in over 200 countries worldwide.

Insurance

We, at Capital Small Finance Bank, understand that different people have different needs at various stages of their lives. That's why, we, in association with ICICI Prudential Life Insurance Company Ltd., HDFC Standard Life Insurance Co. Ltd. offer a host of Life Insurance solutions, depending on whether a customer is a young individual planning for the years ahead or an established professional planning for the retirement or for any other need.

Further, banking services should not just meet the nancial needs, but also help to protect what is important to us, be it our home, ofce, machine, vehicle or heath etc. To offer numerous exible protection options, Capital Small Finance Bank has associated with Bajaj Allianz General Insurance Co. Ltd. & SBI General Insurance Co. Ltd. which fullls General Insurance needs of our customers. Capital Small Finance Bank is engaged in insurance distribution business under corporate agency model

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Dear ShareholdersThe Directors of the Bank have great pleasure in presenting the 21st Annual Report on the business

and operations of the Bank along with the audited accounts for the year ended March 31, 2020.

Indian Economy

India is one of the fastest growing large economies in the world. In recent times, India has taken several initiatives to foster investment, be it relaxing FDI norms, cutting corporate tax rates, containing ination, accelerating infrastructure creation and improving ease of doing business.

India aspire to become a $5 trillion economy and to achieve this a focused approach is required to provide equal opportunities for new entrants and enable fair competition along with ongoing reforms across all sectors. Efcient scale up of the banking sector proportionate to the size of the Indian economy would also be required. The role of investment in driving demand, creating capacity, increasing labour productivity, introdu-cing new technology, allowing creative destruction and generating employment is crucial in making India a global economic super power and to realize the $5 trillion economy dream come true.

Make in India initiative

The US–China trade war is causing major adjustments in Global Value Chains (GVCs) and multinational companies are now looking for alternative locations for their operations. Otherwise also China's image as a low-cost location for nal assembly of industrial products is rapidly changing due to labour shortages and increases in wages. These developments present India an unprecedented opportunity to chart a similar export trajectory.

COVID-19 Impact

The COVID-19 pandemic has very badly hit the entire world. This has already disrupted the global supply chains and international trade. With most of the countries closing national borders, the movement of people and tourism ows have come to a screeching halt. The severity of the economic impact will largely depend on two factors - the duration of restrictions on the movement of people and economic activities in major economies; and the actual size and efcacy of scal responses to the crisis. It is expected that the global economy could plunge into a deep recession. Governments are considering and rolling out large stimulus packages to avert a sharp downturn of their economies. Urgent and bold policy measures are

needed, not only to contain the pandemic and save lives, but also to protect the most vulnerable in our societies from economic ruin and to sustain economic growth and nancial stability.

Response to COVID-19 Distress

Banking services in India are classied under the essential services list. Banking and nancial institutions are under immense pressure to ensure business-as-usual amidst the lockdown and health crisis. Banking services are being provided by maintaining a safe social distance and this shall continue till the situation is under control.

To address and mitigate the burden of loan repayment owing to the COVID-19 pandemic, the Reserve Bank of India has permitted the Banks to grant a moratorium of three months on payment of all instalments falling due between March 1, 2020 and May 31, 2020 for term loans and in respect of working capital facilities sanctioned in the form of cash credit/overdraft (CC/OD to defer the recovery of interest applied in respect of all such facilities during the period from March 1, 2020 upto May 31, 2020). Many other measures have been announced by the Reserve Bank of India to ease liquidity and foster economic growth in this hour of need. The immediate learnings from the current COVID-19 situation will add the much-needed rigor towards digitizing and optimizing the Bank operations.

Growth Expectations

Global nancial institutions and rating agencies project lower economic production for the nancial year 2020-21 due to the Global Lockdown in this nancial distress caused by COVID-19 pandemic. Global Market scenario is full of uncertainties amidst this pandemic and every country is focusing on defeating COVID-19 at a cost of reduced economic growth. As per the reports of various agencies GDP of India is likely to dip. However, the Government is making every possible attempt by giving relief packages, relaxations, nancial aids, etc. to boost the businesses throughout the country and to overcome the anticipated economic losses.

There are upside as well as downside risks to the growth scenario. However, the Bank is committed to make best possible plans to reduce the effect of

DIRECTORS' REPORT

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this pandemic and to boost up the growth. Further Your Bank is focusing on priority sector and shall put extra efforts to provide services to the targeted sector by helping them to come out of this struggling and difcult time.

Financial Market Scenario

India's banking sector is stable and well-regulated. The Reserve bank of India's measures may go a long way in helping the domestic banking industry to come out of the situation created by COVID-19 pandemic. Currently, there are a total of 34 universal banks functioning in India of which 12 are public sector banks and rest 22 are private sector banks.

The Government of India and the Reserve Bank of India has recently carried out consolidation of public sector banks, reducing their number by eight. There are 10 Small Finance Banks operating in India. Besides there are Regional Rural Banks, Urban Cooperative Banks and State Cooperative Banks. Foreign banks like Standard Chartered Bank, Citibank, HSBC and Deutsche Bank have about 178 branches in India besides 42 others which have single or couple of branches each.

Capital Small Finance Bank transitioned from a Local Area Bank to Small Finance Bank with 47 Branches. In a short span, 103 new Branches have become operational, taking the total number of Branches to 150.

After establishing a strong footprint in the state of Punjab, the Bank has now started expansion to the states of Haryana, Delhi, Rajasthan along with Union Territory of Chandigarh. Conversion of the Bank to Small Finance Bank has removed the geographical barriers for expansion, resulting in exponential growth of the Bank in all spheres. The Bank while entering new geographies has retained its core philosophy to provide low cost banking and to act as an engine of economic growth and perform as catalyst of nancial inclusion.

The Business of the Bank has increased from Rs.2963 crores as on March 31, 2016 to Rs.7772.19 crores as on March 31, 2020. The Bank fosters the growth by providing bouquet of nancial services at an affordable cost to the masses and making available customised products to suite their nancial needs. The Bank env isages sus ta inab le g rowth desp i te unprecedented COVID 19 crisis by adopting innovative measures and cooperation of its dedicated work force.

Our USP• 7 Day Branch Banking

• Well Diversied Advance Portfolio

• Uninterrupted & Extended Banking Hours

• Customer Oriented Solutions

• Retail Centric Deposit Mix

• Better Asset Quality

• One-Stop Financial Hub in rural and semi urban areas

• Simple business and operating models

• Elated Workforce and Delighted Customers

The Bank is expanding its outreach with local focus by maintaining a continuity in expansion of its area of operation. The key focus is to proactively manage risk, regulations and capital.

Financial Performance

The Bank has shown all round excellent performance during the year March 31, 2020 despite loss of business during the fag end of the nancial year due to COVID-19 pandemic. Moreover, there has been higher provisioning caused due to relief measures provided by the Bank to its customers.

During the last three years, the Compounded Annual Growth Rate (CAGR) of Deposits is 24.90%, Advances is 33.97% and Total Business is 28.55%. The CASA of the Bank is 36.31 % as on March 31, 2020. Inspite of COVID-19 pandemic effect during the fag end of the nancial year and higher provisioning the Bank has shown healthy growth in prot. There has been a growth in the branch network from 129 as on March 31, 2019 to 150 as on March 31, 2020.

Category wise growth detail of the Branches of the Bank is as under:

Branch March 31 March 31 March 31

2018 2019 2020

Rural 50 58 63

Semi-Urban 33 42 46

Urban 12 20 29

Metropolitan 06 09 12

Total 101 129 150

As against the requirement of at least 25% Unbanked Rural Branches, the Bank has 26% of the total Branches as Unbanked Rural as on March 31, 2020. For effective monitoring of the Branches and ensuring smooth functioning, the Bank has two Regional Ofces one each at Chandigarh and Delhi.

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Great Place to Work

Great Place to Work® Certication is the most denitive 'Employer-of-Choice' recognition that organizations aspire to achieve. The Certication is recognized world over by employees and employers alike and is considered the 'Gold Standard' in identifying and recognizing Great Workplace Cultures.

Every year, more than 10,000 organizations across 60 countries apply to get Great Place to

TMWork–Certied . The participating organizations are assessed through two lenses and, on meeting the qualifying criteria on each of them, are

Certied as a Great Place to Work for a period of 1 year. The two lenses are called Trust Index© and Culture Audit©. The institute considers whether an organization that has met the threshold on Trust Index© and Culture Audit© is also a 'Great Place to Work® FOR ALL'.

Capital Small Finance Bank has the privilege to be Ranked amongst India's 100 Best Companies to work for 5 consecutive years. The Bank has been again certied as a Great Place to Work for the year 2020. The Bank has been recognized amongst India's Top 25 Best Workplaces in BFSI for the year 2020.

Financial Highlights

Particulars Year Ended Year Ended

March 31, 2020 March 31, 2019

Deposits 4446.62 3667.26

Advances 3325.57 2608.78

Total Business 7772.19 6276.04

Gross Revenue 501.09 377.60

Net Interest Income 172.62 135.14

Operating Expenses 163.33 132.17

Provisions & Contingencies 26.86 14.86

Prot Before Tax 34.58 26.92

Prot After Tax 25.38 19.41

Transfer to Staturory Reserves 6.35 4.85

Transfer to other Reserves 3.31 1.27

Dividend 0.60 2.22

Corporate Dividend Tax 0.12 0.46

Carried Forward to the next year 15.00 10.61

Paid up Capital 33.81 28.48

Reserve & Surplus 372.97 221.84

Net Worth 402.83 248.47

Book Value per Share (Rs.) 120.32 87.89

Earning Per Share (Rs.) 8.18 6.82

Non-Performing Asset (Net) 41.25 24.22

Ratio Analysis

Credit Deposit Ratio 74.79% 71.14%

Return on Equity (Pre-tax) 10.53% 11.13%

Capital Adequacy Ratio 19.11% 16.40%

Business Per Employee 4.84 4.72

Branches

Rural 63 58

Semi-Urban 46 42

Urban 29 20

Metro 12 09

Total 150 129

No. of ATMs 151 130

(Rs. in Crores)

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Performance and Protability

After establishing a strong footprint in the state of Punjab, the Bank has now started expansion to the states of Haryana, Delhi, Rajasthan along with Union Territory of Chandigarh. Conversion of the Bank to Small Finance Bank has removed the geographical barriers for expansion, resulting in exponential growth of the Bank in all spheres. The branch network has grown from 47 branches on March 31, 2016 (the eve of conversion) to 150 as on March 31, 2020. The business of the Bank has a grown at CAGR of 28.55%. There has been substantial increase in advances and CD ratio has increased to 74.79% as on March 31, 2020, as against 60% on the eve of conversion.

The Bank has maintained healthy capital adequacy of 19.11% to mitigate the risk of unexpected economic developments. The Bank is poised to perform exceedingly well with a healthy business growth and protability despite pandemic caused due to COVID-19 during the year 2020-21. By providing state of the art, technologically driven, bouquet of nancial services to its diverse clientele at affordable price, the Bank endeavors to become a prominent Banking Institution in North India by 2023.

Dividend

The Bank has a consistent track record of healthy dividend payouts. The Bank is in an exponential growth phase. As you are well aware, that banking industry is a capital intensive industry where with growth capital is required at every stage of expansion. However, in this situation of nancial distress caused due to COVID-19 Pandemic, the Reserve Bank of India has decided that the banks shall not be allowed to declare Dividend for the Financial year 2019-20 till further notice. The said decision has been taken by the regulator by considering the fact that the banks conserve their capital to retain their capacity to support the economy, and absorb losses in an environment of heightened uncertainty.

Therefore, your Bank has decided to retain the prot and to use the said retained earnings as a cushion to bear the impact of the lockdown. The Directors in view of the Reserve Bank of India's advice, are not recommending any dividend for the year under review.

Capital Adequacy Ratio (CAR)

The basic approach of capital adequacy framework is that the Bank should have sufcient

capital to provide a stable resource to absorb any losses arising from the risks in its business as well as to provide growth capital. The Bank has designed well calibrated capital adequacy plan taking into account both systematic risk i.e being faced in the banking industry as well as idiosyncratic risk i.e the Bank specic risk. At the same time the Bank has tried to provide ample cushion for the growth capital so that the Bank is able to manage its growth at exponential pace while managing various risks. The Bank has chalked out plans for maintaining sufcient buffer capital to provide for any kind of stress as well as to provide ample growth capital to keep the growth trajectory on the accelerated lane. The Bank has put in place various rounds, methods, ways and instruments for capital raising from time to time in the next couple of years depending upon its growth capital needs, risk assessment and risk proling as well as keeping buffer capital for unexpected event risks of the future.

The Bank has a healthy CAR of 19.11% as on March 31, 2020 as compared to 16.40% as on March 31, 2019. The Bank has chalked out plans for the next three years to maintain healthy CAR through raising adequate mix of debt and equity instruments so that adequate capital is maintained at all the times to support exponential expansion plans. All in all, the Bank, in compliance to the provisions of the guidelines issued by the Reserve Bank of India, has maintained the capital adequacy ratio at the desired level and has planned to maintain the same comfortably in future also.

Ratio of Capital to Current Previousrisk-weighted assets Year Year

CRAR (%) 19.11% 16.40%

CRAR - Tier I capital (%) 14.00% 10.51%

CRAR - Tier II Capital (%) 5.11% 5.89%

Leverage Ratio 7.27% 5.56%

Further Issue of Capital or Debentures

During the year, the Bank has issued and allotted 1,608,508 Equity Shares on June 25, 2019 and 3,717,966 Equity Shares on November 22, 2019 of Rs.10/- each at a premium of Rs.242/- (i.e. at the total issue price of Rs. 252/-) per Equity Share aggregating to Rs.134.23 crores on a private placement basis under preferential allotment to nancial institutional investors i.e. Amicus Capital Private Equity I LLP, Amicus Capital Partners India Fund I, Pi Ventures LLP and Oman India Joint Investment Fund II.

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The Bank has ample capital cushion to withstand any challenge caused by the outbreak of COVID-19 pandemic as well as to propel its expansion once the situation comes back to normal.

Advance to Priority Sector, Weaker Section

The Bank offers a variety of products to serve the credit requirements of the clients across various sectors viz. Agriculture, MSME, Trading, Mortgage Loans, Consumption Loans etc.

The Bank has always surpassed the minimum dened targets for Lending to Priority Sector. The Priority sector advances of the Bank increased to Rs.1851.95 crores (net amount after sale of PSLC of Rs.520 crores and purchase of PSLC of Rs.70 crores) as on March 31, 2020 as against Rs.1501.40 crores as on March 31, 2019, registering a growth of 23.35%. The Priority Sector Lending achievement of the Bank is 80.91% of the Adjusted Net Bank Credit of previous year ended March 31, 2019 and is well above the 75% benchmark set by the Reserve Bank of India for Small nance Banks.

The advances to Weaker Section including Small and Marginal Farmers, Scheduled Castes, etc. stood at Rs.237.76 crores as on March 31, 2020 with an achievement of 10.39% of Adjusted Net Bank Credit of previous year i.e. March 31, 2019 as against the regulatory benchmark of 10%.

KISAN CREDIT CARD Scheme offered by the Bank is one of the agship products which is instrumental in extending need based credit to the agriculturists. The scheme covers the short term as well as long term credit requirements of the farmers.

The total credit to agriculture and allied has increased to Rs.1274.44 crores as on March 31, 2020 as against Rs.985.64 crores as on March 31, 2019 showing a growth of 29.30%, which stood at 36.02% of the Adjusted Net Bank Credit of previous year ended March 31, 2019.

The Bank is aggressively funding the MSME and Trading sector, which forms the backbone of the economy. Capital Small Finance Bank provides not only working capital facilities to this segment, but also funds the long terms requirements of the clients including xed asset nancing, project nancing, etc.

The advances to this segment stood at Rs.889.51 crores as on March 31, 2020 as against Rs.778.43 crores as on March 31, 2019 registering a growth of 14.27%.

Furthermore, the Bank lays stress on lending in small tickets to ensure that credit requirements of the lower and middle income groups are effectively met out. As on March 31, 2020, advances upto Rs. 25 lac account for 59.46% of total loan book of the Bank.

In the testing times of COVID-19, the Bank has put in its best efforts to stand by its clients and fulll its commitment of customer service. The Bank has offered the facility of moratorium to all the borrowers. This has facilitated the borrowers to cope up with the limited cash ows.

Also, the Bank has offered additional working capital facility (short term) to the existing borrowers who are facing cash crunch due to the pandemic. The Bank has proactively managed the staff at branches to ensure that the borrowers should not face any difculty in operating their accounts.

Statutory Disclosures

1. Compliances as per The Reserve Bank of India and the Government of India

The Bank has made all the statutory compliances required by the Reserve Bank of India and the Government of India's guidelines, including maintenance of Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR).

2. Information as per Rule 5(2) of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014

The information with regard to employees who are in receipt of remuneration in excess of Rs.102 lakhs per annum or Rs. 8.50 lakhs per month employer for a part of the year is enclosed as Annexure 'A'.

Details of top ten employees in terms of remunerat ion drawn is enc losed as Annexure 'A'.

3. Information pursuant to Section 197(12) of the Companies Act, 2013 read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014

The information under Section 197(12) of the Companies Act, 2013 read with Rule 5(1) of the Companies (Appointment and Remune-ration of Managerial Personnel) Rules, 2014 in respect of Directors and employees of the

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Bank is provided as an Annexure – 'B' to this report.

4. Transfer of unclaimed dividend to Investor Education and Protection Fund

Pursuant to the relevant provision of Section 125 of Companies Act, 2013 and the relevant rules made thereunder, the amount of unpaid dividend that are lying unclaimed for a period of 7 years from the date of its transfer to the unpaid dividend account, is liable to be transferred to Investor Education and Protection Fund (IEPF) administered.

Accordingly, dividends for and up to the nancial year ended March 31, 2012 have already been transferred to the IEPF. Further, please note that the unclaimed dividend in respect of the nancial year ended March 31, 2013 must be claimed by the concerned shareholder(s) on or before November 04, 2020 failing which it will be transferred to IEPF in accordance with the Rules. The data for the same shall be available on the website of the Bank at www.capitalbank.co.in.

The details of Unclaimed Dividends as on March 31, 2020 and the last date for claiming the same, prior to its transfer to the IEPF, are as under :-

Dividend Date of Last date for the declaration of claiming year ended of Dividend Dividend

31-03-2013 28-09-2013 04-11-2020

31-03-2014 27-09-2014 03-11-2021

31-03-2015 19-09-2015 26-10-2022

31-03-2016 23-09-2016 30-10-2023

31-03-2017 22-07-2017 29-08-2024

31-03-2018 18-08-2018 25-09-2025

Transfer of Underlying Equity shares in respect of the unclaimed Dividend to IEPF

Pursuant to the relevant provisions of Section 124 and Section 125 of the Companies Act, 2013 read with the IEPF (Accounting, Audit, Transfer and Refund) Rules, 2016, as amended from time to time, the unclaimed Dividend and the underlying Equity Shares of the Bank for the Financial Year 2011-2012 (in case where the Dividend for subsequent nancial years have not been claimed by the concerned Shareholder), were liable to be transferred by the Bank to IEPF Authority and the same has been transferred, pursuant to the notication issued by the Ministry of

Corporate Affairs (MCA) Dated October 16, 2017.

5. E x p l a n a t i o n o r c o m m e n t s o n qualications, reservations or adverse remarks or disclaimers made by the auditors and the practicing company secretary in their reports

There were no qualications, reser-vations or adverse remarks made by the Statutory Auditors and by Secretarial Auditors in their audit reports.

6. Extract of the Annual Return Pursuant to sub- section 3(a) of Section 134 and sub- section (3) of Section 92 of the Companies Act, 2013 read with Rule 12 of the C o m p a n i e s ( M a n a g e m e n t a n d Administration) Rules, 2014,

The extracts of the annual return in the form MGT-9 as on March 31, 2020 forms part of this report as an Annexure- 'C'. The same shall be available on the website of the Bank at www.capitalbank.co.in. Further, the annual return of the Bank in the prescribed Form MGT-7 is available on the website of the Bank at the link www.capitalbank.co.in.

7. Disclosure under Section 134 (3)(m) of the Companies Act, 2013 read with Rule 8(3) of the Companies (Accounts) Rules, 2014

Energy Conservation: The Company being a banking company, the energy consumed by the Bank during this period is only in the form of electricity and diesel used in generators. The company has allocated specic cost budgets for the same in Head Offce and all its branches to reduce electric waste and the same is monitored on periodical basis. Other measures like use of LEDs, power saver air conditioning equipments etc. are being installed for conserving the energy. There is no capital investment on energy conservation equipment other than specied.

Technology Absorption:

We at Capital Small Finance Bank Limited believe that the banks with the ability to adopt and integrate information technology will dominate in the highly competitive domestic market. Accordingly, the Bank continues to leverage information technology as a strategic tool in business operations for

- 13 -

customer delight by offering efcient and improved services with low cost and using it as a tool to improve staff productivity, increasing efciency and more efcient & effective control over banking operations.

The Bank is using Cor Banking System from Intellect Design Arena Ltd. (erstwhile Polaris Financial Technology Ltd.) Chennai which enables the bank clientele to avail any branch banking and anytime banking through different delivery channels.

We are convinced that investing in IT is critical and also understand that its potential and consequences on the banking is enormous. That is why the Bank since its inception is equipped with a full-edged Information Technology Department with four verticals of expertise; Software, System & Support, Network and Helpdesk with required manpower to strengthen develop, maintain and support IT infrastructure.

8. Foreign Inow and Outgo: There was no foreign exchange earnings inow or outow during the year under review.

9. Disclosures Under Section Sec 134(3)(l) of The Companies Act, 2013

There are no mater ia l changes and commitments, affecting the nancial position of the bank, which has occurred between the end of the nancial year of the Bank and date of this report.

The Pandemic caused due to COVID-19, which started at the far end of the nancial year is continuing till the date of this report. There has been a complete lockdown of the economy and some relaxations are being given by the Government. The Banking operations though have been allowed with restrictions, have also been impacted adversely. The impact of COIVD-19 has been visualized by the Board in other parts of the report.

10. Details of signicant & material orders passed by the regulators or courts or tribunals

There are no signicant material orders passed by the Regulators or Courts or Tribunal which would impact the going concern status of the Bank and its future operations.

11. Transfer to reserves in terms of section Sec 134(3)(j) of the Companies Act, 2013

For the nancial year ended March 31, 2020, the Bank had transferred Rs.6.35 Crores to the Statutory Reserve Fund (maintained under section 17(1) of RBI Act, 1934). The Bank has transferred Rs.11.19 lakhs to Special Reserve maintained under section 36(viii) of Income Tax Act, 1961.

12. Asset-Liability and Risk Management pursuant to sect ion 134 (3) (n) of Companies Act, 2013

The Bank has formulated and adopted a robust risk management framework. Whilst the Board is responsible for framing, implementing and monitoring the said risk management frame work, it has delegated its powers relating to monitoring and reviewing of risk associated with the business of the Bank to the Risk Management Committee of the Board. The Bank follows an integrated approach to managing risks and the processes are embedded in the fundamental business model. The Risk Management Landscape in the Bank covers the stages of identifying, assessing, measuring, managing, controlling and reporting risk concerns across all the risk classes viz. credit risk, market risk, liquidity risk, interest rate risk, operational risk, etc. Further our focus on digitization comes with cyber security and data risk.

The Risk Management Policies adopted and reviewed periodically articulate, codify the strategy, structure, processes and systems to manage bank wide risks. Expanding business arenas, deregulation and globalization of nancial activities, emergence of new nancial products and increased level of competition has necessitated the need for an effective and structured risk management practice in nancial institution.

The Bank has adopted an integrated approach for the management of risk. Effective internal policies are developed in tune with the business requirements and best practices. Capital Bank has formulated 'Risk Management Policy' which also includes Internal Capital Adequacy Assessment Policy (ICAAP) for identifying and measuring various operational, credit, market and solvency risks. Operational risks are managed through comprehensive systems of internal control, establishing systems and procedures to

- 14 -

monitor transactions, maintaining key back-up procedures and undertaking regular contingency planning. We constantly strive to enhance the risk management capabilities in accordance with the emerging regulatory guidelines and the broad risk management principles. The Bank reviews the risk management system and the progress made in implementing the RBI guidelines on risk management, on a quarterly basis. The Asset Liability Management Committee (ALCO), consisting of the Bank's senior management and the Managing Director, is responsible for ensuring adherence to the limits set by the Board as well as for deciding the business strategy of the Bank (on the assets and liabilities sides) in line with the bank's budget and decided risk management objectives. The Committee actively manages and controls the structure of assets and liabilities and interest rate sensitivities with a view of optimizing prots besides maintaining capital adequacy and sufcient liquidity. Statements for Structured Liquidity, Liquidity Coverage and Interest Rate Sensitivity of the bank is being prepared in line with the RBI guidelines to actively manage the liquidity and interest rate risks.

Liquidity Risk Management has been at the core of sound risk management practices of banking industry in the modern age. The Liquidity risk is the potential inability to meet the Bank's liabilities as they become due. It arises when the Banks are unable to generate cash to cope with a decline in deposits or increase in assets.

The Bank gives utmost importance to manage various risks in most efcient way and has articulated comprehensive structure for liquidity risk management through various policy including Contingency Funding Plan (CFP) which aims to address the adverse liquidity scenarios.. The contingency is d e n e d i n v a r i o u s s c e n a r i o s . T h e comprehensive CFP endeavors to monitor liquidity on real time basis, with a wide and unrelated range of lines of defense, along with proper channel of reporting, escalation and decision making.

Further, the Bank has formulated Stress Testing Framework for evaluation of Bank's nancial position under a severe but plausible scenario to assist in decision making within the Bank. It enables the Bank in forward looking assessment of risks. It facilitates internal and external communication and

helps senior management understand the condition of the Bank in the stressed situations. Stress testing outputs are extremely useful in decision making process in terms of potential actions like risk mitigation techniques, contingency plans, capital and liquidity management in stressed conditions.

Stress testing forms an integral input of the internal capital adequacy assessment process (ICAAP), which requires the Bank to undertake forward-looking stress testing that identies severe events or changes in market conditions that could adversely impact the Bank.

The stress testing reports provide the senior management with a thorough understanding of the material risks to which the Bank may be exposed and to help in potential actions like mitigation techniques, contingency plans, capital and liquidity management in stressed conditions etc. Further, stress testing is an important input in identifying, measuring and controlling funding liquidity risks, in particular for assessing the Bank's liquidity prole and the adequacy of liquidity buffers in case of both bank-specic and market-wide stress events.

The Bank has a strong impetus on risk management and it realized that risk management is backbone of banking industry and being an evolving topic, the bank attempts to keep evolving various newer avenues to manage risk effectively and efciently as per the risk management policy and framework of the bank so that the whole structure is well aligned with the risk appetite, risk assessment and risk mitigation strategy of the Bank.

13. Independent Directors Declaration in terms of Section 134(3)(d); Sec 149(6) of Companies Act 2013

The composition of Board of Directors of the Bank is governed by the provisions of the Compan ies Ac t , 2013 , the Bank ing Regulation Act, 1949.The Board of the Bank as on March 31, 2020 consisted of thirteen Directors, out of which seven directors are independent.

The Bank has obtained declaration of Independence from Mr. Madan Gopal Sharma, Mr. Rakesh Soni, Mrs. Harmesh Khanna, Mr. Sham Singh Bains, Mr. Navin Kumar Maini, Mr. Gurdeep Singh and Mr.

- 15 -

Gurpreet Singh Chug and they meet the criteria of independence as laid down under Section 149(6) of the Companies Act, 2013. Further, all the Independent Directors have complied with the Code for Independent Directors prescribed in Schedule IV to the Act.

14. C o m p a n y ' s P o l i c y o n D i r e c t o r s ' Appointment & Remuneration including criteria for determining Qualications, Attributes, Independence etc. in terms of Sec 134(3)(e); Sec 178(1) & (3) of Companies Act 2013

Base of the 'Fit and Proper' criteria laid down by the Reserve Bank of India, the Nomination and Remuneration Committee conducts the due diligence of the Board members on yearly basis. The due diligence process involves considering the appointment and remune-ration of Directors and Key Managerial Personnel as per the guidelines issued by Reserve Bank of India and the Companies Act, 2013. The process contains detailed procedures for determining qualication, positive attributes, due diligence mechanism and reference checks for appointment of Directors and Key Managerial Personnel.

15. Performance Evaluation of Board in terms of Section 134(3)(p) of Companies Act, 2013

A separate meeting of Independent Directors was proposed to be convened on March 31, 2020 but due to the outbreak of pandemic caused by COVID -19, the Bank could not carry out the annual evaluation of its own performance and that of its Committees. However, the same would be done as and when the lockdown is lifted and the situation gets settled. Ministry of Corporate Affairs has also given the exemption for the year 2019-20.

16. State of the Company's Affairs of the company in terms of Section 134(3)(i) of the Companies Act 2013

The state of affairs of the company in details has been given separately in different sections of the Board Report and also under Management Discussion and Analysis. There was no change in status of the Bank during the year. There was no change in the nancial year of the Bank.

17. Name of the companies which have become or ceased to be Subsidiaries/ Associates or Joint Ventures during the year in terms of Sec 134(3)(q) read with Rule 8(5)(iv) of Companies (Account) Rules, 2014

No Company have become or ceased to be the Subsidiary, Joint venture or Associate Company of the Bank during the nancial year.

18. Disclosure Under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 in terms of The Sexual Harassment of Women at the workplace (Prevention, Prohibition & Redressal) Act, 2013

The Bank has formulated Internal Compliant Committees at Head ofce level and at Cluster level (For Branches). The composition of the committees is in consonance with the provisions of The Sexual Harassment of women at the workplace (Prevention, Prohibition & Redressal) Act, 2013. These committees are formulated for redressal of complaints for Sexual Harassment of women at the workplace and take all necessary measures to ensure a harassment-free workplace.

The Bank believes that all employees, including other individuals who are dealing with the bank have the right to be treated with dignity.

The cases reported to the Bank, if any were duly addressed and resolved. There is no pending complaint under the said act.

The following are the summary of the complaints received and disposed off during the Financial Year 2019-20:

In Head Ofce

a) No. of SH complaints received: Nil

b) No. of SH complaints disposed off: Nil

In Branches

a) No. of SH complaints received: Nil

b) No. of SH complaints disposed off: Nil

The Committee takes appropriate action against the employees who have violated the norms, which includes disciplinary action such as warning letter and in some cases termination of employment depending upon the gravity of violation.

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19. Adequacy of Internal Financial Controls Related to Financial Statements

The Companies Act, 2013 has introduced a reasonably advanced reporting concept for auditors i.e. Internal Financial Control (IFC) over nancial reporting. Auditors of the company are required to report on adequacy and operating effectiveness of internal nancial controls of the company with report on nancial statements prepared under section 143 of the Companies Act, 2013.

The Bank as per the requirement of section 134(5)(e) has adopted the policies and procedures to ensure orderly and effcient conduct of it's business, including adherence to the Company's policies, safeguarding of it's assets prevention and detection of frauds and errors, accuracy and completeness of accounting records, timely preparation of reliable nancial information.

During the year under review, the Statutory Auditors and the Secretarial Auditors have not reported any instances of frauds committed in the Bank by its Ofcers or Employees to the Audit Committee under section 143(12) of the Companies Act, 2013, details of which needs to be mentioned in the Report.

20. Directors

The Board of the Bank is duly constituted in accordance with the provisions of Banking Regulation Act, 1949 and Companies Act, 2013. Mr. Sarvjit Singh Samra has been serving as the Managing Director & CEO of the Bank since July 21, 2003, with the approval of Reserve Bank of India (RBI) and the shareholders, from time to time. The Reserve Bank of India has approved the re-appointment of Mr. Sarvjit Singh Samra as Managing Director of the Bank for a period of three years w.e.f. April 24, 2019 which was conrmed by the Shareholders in the Annual General Meeting held on September 27, 2019.

Appointment of Part-time Chairman

The Reserve Bank of India conveyed the approval for appointment of Mr. Madan Gopal Sharma (DIN: 00398326) as Part-time Chairman of Capital Small Finance Bank Limited for a period of three years w.e.f. April 23, 2019.

Retirement/Appointment of Directors in compliance to Section 10(2A)(i) of the Banking Regulation Act, 1949

The Board is duly constituted as per the provisions of Banking Regulation Act, 1949, Companies Act, 2013, RBI guidelines for Small Finance Banks and SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015.

During the year Mr. Mohit Verma (DIN: 02647080) was appointed as an Additional Director (Nominee) on July 17, 2019 and his appointment was ratied by the shareholders as a Nominee Director on the Board in the Annual General Meeting held on September 27, 2019. Further Mr. Mahesh Parasuraman (DIN: 00233782) and Mr. Srinath Srinivasan (DIN: 00107184) were appointed as additional directors (Nominees) by the Board of Directors in the meeting held on December 16, 2019. Mr. Mahesh Parasuraman and Mr. Srinath Srinivasan's has been further conrmed as Nominee Director on July 13, 2020 by members through Postal Ballot.

Directors Retiring by Rotation

In terms of Section 152 of the Companies Act, 2013, Mr. Dinesh Gupta, director being longest in the ofce shall retire at the forthcoming Annual General Meeting and being eligible for re-appointment, ofer himself for re- appointment.

Appointments/Resignations of the Key Managerial Personnel

Mr. Sarvjit Singh Samra, Managing Director and Chief Executive Ofcer; Mr. Munish Jain, Chief Operating Ofcer and Chief Financial Ofcer; Mr. Amit Sharma, Company Secretary of the Bank are the Key Managerial Personnel as per the provisions of the Companies Act, 2013 as on March 31, 2020. During the year, Mr. Sahil Vijay resigned as Company Secretary of the Bank and Mr. Amit Sharma was appointed as Company Secretary of the Bank w.e.f. May 17, 2019 and Mr. Sarvjit Singh Samra was reappointed as Managing Director of the Bank.

21. Corporate Governance

Corporate governance is the combination of rules, processes or laws by which businesses are operated, regulated or controlled and that aims at effective, transparent, and respon-sible management of a company within the applicable statutory and regulatory structures.

Over the last several years, the external environment in which public companies operate has become increasingly complex for

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companies and shareholders alike. The increased regulatory burdens imposed on public companies in recent years have added to the costs and complexity of overseeing and managing a corporation's business and bring new challenges from operational, regulatory and compliance perspectives. Many cases of Management failures and nancial crisis have been reported in the nance industry during the nancial year and all these are the cause of poor corporate governance.

Your Bank has formulated a Corporate Governance framework which ensures timely disclosures and ling of correct information regarding our nancials and performance, as well as the leadership and governance of the Bank. The Board is constituted professionally with a strong commitment to shareholder value, transparency, accountability, ethical standards and regulatory compliances.

The Board's supervisory role is independent and separate from the executive manage-ment and the Board Committees. The Composition of the Board of Directors as on March 31, 2020 comprised of majority of Independent directors and this is a great step of the Bank towards better Corporate Governance.

The Board presently comprises of Thirteen Directors including one-woman director and it provides diverse combination of profession-alism, knowledge, expertise and experience as required in the banking business. The Board has seven Independent Directors constituting more than one-half of its total membership strength including one women Director and 4 Nominee Director. The Directors have distinguished themselves in different walks of life through experience and expertise.

Meetings of the Board and Committees of the Board

The Board of Directors of the Bank is meeting regularly to discuss and decide on various business policies, strategies and other businesses. The Board met 6 times during the year under review.

The details of the meetings of the Board are as follows:

Board of Directors

Total Meetings 6

Dates of Meetings

May 17, 2019; July 17, 2019;

November 8, 2019; December 16, 2019;

February 07, 2020; March 30, 2020

No. of meetings attended by Directors

1 Mr. Madan Gopal Sharma 3

2 Mr. Sarvjit Singh Samra 6

3 Mr. Dinesh Gupta 5

4 Mr. Rakesh Soni 4

5 Ms. Harmesh Khanna 6

6 Mr. Sham Singh Bains 5

7 Mr. Gurdeep Singh 5

8 Mr. Rahul Priyadarshi 3

9 Mr. Gurpreet Singh Chug 6

10 Mr. Navin Kumar Maini 6

11 Mr. Mohit Verma 3

12 Mr. Mahesh Parasuraman 2

13 Mr. Srinath Srinivasan 2

A meeting of Independent Directors was proposed to be convened on March 31, 2020 but could not held due to Curfew imposed in Punjab on March 23, 2020. Ministry of Corporate Affairs has given exemption for holding independent director's meeting for the year 2019-20.

The Bank has several committees which have been established as a part of the best Corporate Governance practices and are in compliance with the requirements of the relevant provisions of applicable laws and statutes.

The Bank has following Committees of the Board:

1. Management Committee

2. Audit Committee

3. Credit Sanctioning Committee

4. Risk Management Committee

5. Nomination & Remuneration Committee

6. Special Committee on frauds

7. Stakeholders Relationship Committee

8. Corporate Social Responsibility Committee

9. Investors Grievance Redressal Committee

10. Securities Committee

11. IT Strategy Committee

12. Committee for review of Willful Defaulters

13. Committee for review of Non-Cooperative Borrowers

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Nomination and Remuneration Committee

The Board of Directors in the meeting held on May 17, 2019 reconstituted the Nomination and Remuneration Committee by retiring Mr. Madan Gopal Sharma as Chairman of the Committee and appointing Mr. Rakesh Soni as Chairman and by further appointing Mr. Gurpreet Singh Chug as member of the Committee.

As on March 31, 2020, committee had four members consisting of Mr. Rakesh Soni (Chairman), Mr. Sham Singh Bains (Member) and Mr. Gurdeep Singh (Member) and Mr. Gurpreet Singh Chug (Member). The majority of the members of the committee are independent non-executive directors. The committee has been constituted to review the structure, size, composition, diversity of the Board and designing of the criteria for determining the qualications, positive attributes and independence of the directors. The Nominat ion and Remune-rat ion Committee also approves the appointment and remuneration of KMPs as per the Reserve Bank of India guidelines, Companies Act 2013, policy of the Bank and other laws.

The details of the meetings of the Board are as follows:

Total Meetings 5

Dates of Meetings

April 24, 2019, May 16, 2019; July 09, 2019; December 07, 2019; February 03, 2020



2 Mr. Rakesh Soni 5




The Company Secretary of the Bank acts as Secretary to the Nomination and Remun-eration Committee.

Securities Committee

Securities Committee the Board of Directors in the meeting held on May 17, 2019 reconstituted the Securities Committee of the Board to allot all types of securities issued by the Bank and also to approve various related matters by appointing Mr. Dinesh Gupta as Chairman of the Committee in place of Mr.

Sarvj i t Singh Samra. The committee comprises of Mr. Dinesh Gupta (Chairman), Mr. Sham Singh Bains (Member) and Mr. Gurdeep Singh (Member) as the members of the committee.

The detail of the meetings of the Securities Committees are as follows:

Total Meetings 8

Dates of Meetings

April 26, 2019, May 16, 2019; June 25, 2019; July 25, 2019; August 31, 2019; November 14, 2019; November 22, 2019; February 28, 2020






Audit Committee

The Board of Directors in its meeting held on May 17, 2019 has reconstituted the Audit Committee by adding Mr. Gurpreet Singh Chug and Mr. Dinesh Gupta as member of the committee in place of Mr. Sarvjit Singh Samra and Mr. Gurdeep Singh. The members of the Committee are Mr. Madan Gopal Sharma (Chairman), Mr. Rakesh Soni (Member), Mr. Gurpreet Singh Chug (Member) and Mr. Dinesh Gupta (Member). The committee met six times in a year. The functions of the Audit Committee are as follows:

• Overseeing the nancial reporting and disclosure process.

• Monitoring choice of accounting policies and principles.

• Overseeing hir ing, performance and independence of the external auditors.

• Oversight of regulatory compliance, ethics, and whistleblower hotlines.

• Review of accounting policies and practices

• Monitoring the internal control process including review of the effectiveness of the internal audit in mitigating risks

• Review of transactions with related parties

• Review of frauds

• Review of complaints under sexual harrsment

• Overseeing the compliance function of the Bank

• Overseeing the performance of the internal audit function.

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• Discussing risk management policies and practices with management.

• Review and monitoring of the statutory auditors independence and performance and effectiveness of audit process.

• Review of independence assurance of the audit function of the Bank

The detail of the meetings of the Audit Committees are as follows:

Total Meetings 6

Dates of Meetings

May 17, 2019; August 07, 2019; October 04, 2019; November 04, 2019; February 03, 2020; March 23, 2020



2 Mr. Rakesh Soni 6





Corporate Social Responsibility Committee and Statutory Disclosure

The functions of the committee include review of corporate social responsibility initiatives by the Bank for Inclusive Growth, formulation and recommen-dation to the Board of a CSR Policy indicating the activi t ies to be undertaken by the Bank and recommendation of the amount of expenditure to be incurred on such activities, reviewing and recommending the annual CSR plan to the Board, making recommendations to the Board with respect to the CSR initiatives, policies and practices of Capital Small Finance Bank.

Pursuing a vision towards the socioeconomic empowerment of under privileged and marginalized sections of society, the Bank reiterates its commitment to support social initiatives with a special focus on education, nancial literacy and livelihood support. It is of paramount importance that the funds of the Bank are utilized prudently to ensure maximum social benet and development.

The composition of the CSR Committee as on March 31, 2020 comprises of Mr. Sarvjit Singh Samra (Chairman), Mr. Rakesh Soni (Member), Mr. Sham Singh Bains (Member)

and Mr. Gurdeep Singh (Member). The Annual Report on CSR activities as required to be given under Section 135 of the Companies Act, 2013 and Rule 8 of the Companies (Corporate Social Responsibility Policy) Rules, 2014 has been provided in an Annexure- D which forms part of the Directors Report.

The details of the meetings of the CSR Committee are as follows:

Total Meetings 1

Dates of Meetings

April 26, 2019



2 Mr. Rakesh Soni 1



Details of other commi�ees of Board:

Management Commi�ee

The Board of Directors in its meeting held on May 17, 2019 has reconstituted the Manage-ment Committee by adding Mrs. Harmesh Khanna and Mr. Gurpreet singh chug and Mr. Dinesh Gupta as member of the committee and by further retiring Mr. Gurdeep Singh as the member of the committee. The members of the Committee as on March 31, 2020 are Mr. Sarvjit Singh Samra (Chairman), Mr. Rakesh Soni (Member), Mr. Gurpreet Singh Chug (Member), Mrs. Harmesh Khanna (Member) and Mr. Dinesh Gupta (Member).

The deta i l s o f the meet ings o f the Management Committee are as follows:

Total Meetings 4

Dates of Meetings

June 15, 2019; August 09, 2019; November 04, 2019; February 03, 2020



2 Mrs. Harmesh Khanna 3

3 Mr. Rakesh Soni 4



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Risk Management Committee

The Board of Directors in its meeting held on May 17, 2019 has reconstituted the Risk Management Committee of the Board. The members of the Committee as on March 31, 2020 are Mr. Dinesh Gupta (Chairman), Mr. Rakesh Soni (Member), Mr. Gurpreet Singh Chug (Member) and Mrs. Harmesh Khanna (Member).

The details of the meetings of the Manage-ment Committee are as follows:

Total Meetings 4

Dates of Meetings

June 15, 2019; August 09, 2019; November 04, 2019; February 03, 2020


1 Dinesh Gupta 4

2 Mr. Rakesh Soni 3

3. Mrs. Harmesh Khanna 4


Credit Sanctioning Committee

The Board of Directors in its meeting held on May 17, 2019 has reconstituted the Credit Sanctioning Committee by appointing Mr. Dinesh Gupta as member of the Committee in place of Mr. Sham Singh Bains. The members of the Committee as on March 31, 2020 are Mr. Sarvjit Singh Samra (Chairman), Mr. Dinesh Gupta (Member) and Mr. Gurdeep Singh (Member).

The details of the meetings of the Committee are as follows:

Total Meetings 14

Dates of Meetings

April 25, 2019; May 16, 2019; May 24, 2019; June 19, 2019; July 06, 2019; July 22, 2019; August 16, 2019; S e p t e m b e r 0 2 , 2 0 1 9 ; September 26, 2019; November 05, 2019; November 29, 2019; December 12, 2019; February 15, 2020; March 11, 2020






IT Strategy Committee

The Board of Directors in its meeting held on May 17, 2019 has constituted a new committee i.e IT Strategy Committee. The members of the Committee as on March 31, 2020 are Mr. Gurpreet S ingh Chug (Chairman), Mr. Sarvj i t Singh Samra (Member), Mr. Munish Jain (Member), Mr. Vishal Madan (Ofcio Member) and Mr. Vimal Kumar Kamal (Ofcio Member).

The details of the meetings of the Committee are as follows:

Total Meetings 3

Dates of Meetings

September 30, 2019; December 10, 2019; March 30, 2020


1 Gurpreet Singh Chug 3


2 Mr. Munish Jain 3

3 Mr. Vishal Madan 2

4 Mr. Vimal Kumar Kamal 3

Vigil Mechanism

The Bank has implemented a Whistleblower Policy, which is periodically reviewed, pursuant to which safeguards are being provided against victimization of employees and directors who can raise concerns relating to Reportable Matters (as dened in the policy) such as breach of Bank's Code of Conduct, fraud, bribery, corruption, employee misconduct, illegality, health & safety, env i ronmenta l issues and wastage/ misappropriation of bank funds/assets, etc. and also provides for direct access to the Ombudsperson, in exceptional cases. The policy has been periodically communicated to all the employees and the same is available on the Bank's intranet. The Whistleblower Policy complies with the requirements of Vigil mechanism as stipulated under Section 177 of the Companies Act, 2013, and other applicable laws, rules and regulations. The updated Whistleblower Policy is also available on the website of the Bank.

The Bank has also appointed Chief of Internal Vigilance to ensure compliance with all the internal guidelines issued by the Bank from time to time.

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The functioning of the Policy is reviewed by the Audit Committee from time to time. The concerns reported in accordance with the said policy have been duly settled. None of the complainants have been denied access to the Audit Committee of the Board.

Loans, Guarantees or Investments in securities

Pursuant to Section 186 (11) of the Companies Act, 2013, the provisions of Section 186 of Companies Act, 2013, except sub-section (1), do not apply to a loan made, guarantee given or security provided or any investment made by a banking company in the ordinary course of business. Therefore, the said provision is not applicable to the Bank.

Contracts or Arrangements with Related Parties

All related party transactions that were entered during the Financial Year 2019-20 were in the ordinary course of the business of the Bank and were on arm's length basis and

the same is enclosed as Annexure- E in the prescribed format AOC-2 to this Report. There were no materially signicant related party transactions entered by the Bank with Promoters, Directors, Key Managerial Personnel or other persons which may have a potential conict with the interest of the Bank. All such Related Party Transactions are being placed before the Board/Audit Committee for approval, wherever applicable.

Moreover, the disclosures required under Regulation 53(f) of SEBI (Listing Obligations and Disclosures Requirement), 2015 is not applicable on Banking Companies.

Disclosure regarding Employee Stock Option and Employee Stock Purchase scheme

Capital Small Finance Bank Limited – Employees Stock Option Plan 2018 (“CSFB ESOP 2018”) was approved by the shareholders of the Bank, in the Annual General Meeting held on September 27, 2019, for granting equity stock options to its employees and directors (other than independent directors).

Scheme Date of Grant

Vesting Exercise Period

Exercise Price per

option

Method of Settlement

CSFB

ESOP

2018

April 30,

2019

Graded Vesting:

April 30, 2020- 25%

April 30, 2021- 30%

April 30, 2022- 45%

Twelve months from the date of vesting

Rs. 98 Equity

1. The details of the Plan are as under :-

The Options have been granted basis fair value calculated as per Discounted Cash Flow Method.

2. The status of the Options is as under:

Particulars March 31, 2020

(No. of Options)

March 31, 2019

(No. of Options)

Options outstanding, beginning of year - NA

Granted during the year 650496 NA

Vested during the year - NA

Exercised during the year - NA

Forfeited / Lapsed during the year - NA

Options outstanding, end of year 650496 NA

Options exercisable - NA

-22 -

4. Details of any other employee who have received a grant of options in any one year of options amounting to ve percent or more of total options granted during that year - Nil.

5. Details of identied employees who were granted options, during any one year, equal to or exceeding one percent of the issued capital, excluding outstanding warrants and conversions, of the company at the time of grant - Nil

6. in case of a company whose shares are listed:- NA

Disclosure pursuant to Section 197(14) of the Companies Act, 2013

The Bank does not have any holding or subs id iary companies, therefore no disclosure is required to be made pursuant to the provisions of Section 197(14) of the Companies Act, 2013 and as per the relevant rules thereunder.

Disclosure regarding Sweat Equity Shares

In respect of the disclosure as per Rule 8(13) of The Companies (Share Capital and Debenture) Rules, 2014, the bank has not issued any Sweat Equity Shares during the nancial year under review.

Disclosure in respect of voting rights not exercised directly by employees

Pursuant to the relevant provision of Section 67(3) read with Rule 16(4) of Share Capital and Debenture Rules, 2014, regarding voting rights not exercised by employees regarding purchase of its own shares by employees or by trustees for benet of employees, it is informed that the Bank has not granted any loan, guarantee, the provision of security or otherwise, any nancial assistance to any person for the purchase of its own securities, therefore no disclosure is required to be made under this section.

Change in Nature of Business

Pursuant to the relevant provision of Rule 8(5) of the Company (Accounts) Rules, 2014, there is no change in the nature of Business of the bank.

Issue of Equity Shares with Differential Rights

Pursuant to Rule 4(4) of Companies (Share Capital and Debentures) Rules, 2014, the Bank has not issued any Equity shares with differential right during the nancial year under review.

Listed Securities, Debenture Trustee Detail and Credit Rating

The debt securities of the Company issued in the form of Upper Tier-II Bonds which are listed on Bombay Stock Exchange Limited (BSE) and detail of the same is as under:

NCD SERIES COUPON ISIN RATE NO.

Unsecured Redeemable 11.75% INE646H08012

Non- Convertible

(Upper Tier II),

Basel I compliant Bonds

2014-15 (series XI)

Unsecured Redeemable 11.75% INE646H08020

Non- Convertible

(Upper Tier II),

Basel I Compliant Bonds

2015-16 (series XIII)

Credit rating agency of the Bank is Brickwork Ratings India Private Limited having Registered ofce at 03rd Floor, Raj Alkaa Park, 29/3 & 32/2 Kalena Agrahara, Bennerghatta Road, Bengaluru – 560076. During the year credit Ratings of the Bank for Upper tier II instruments enhanced the credit rating of the instruments from “BWR A (Outlook: Stable)' to “BWR A+ (Outlook Stable)” . As per the rat ing agency

3. Details of Options granted to Key Managerial Personnel;

Sr. No Name of KMP Designation No. of Option

Granted

No. of Option

Vested

1 Mr. Munish Jain CFO 64,283 -

2 Mr. Amit Sharma CS 312 -

- 23 -

“ Inst ruments wi th th is ra t ing are considered to have adequate degree of safety regarding timely servicing of nancial obligation. Such instruments carry low credit risk.

Debenture Trustee of the Bank is IDBI Trusteeship Services Limited having registered offce at Asian Building, 17, R Kamani Marg, Ballard Estate, Mumbai-400001.

Dematerialization of Securities

The Bank has been issued ISIN for all the equity and debt securities by NSDL and CDSL. The equity securities of all the Directors, KMPs and Promoters have been dematerialized and the Bank is making all possible efforts to make the security holders aware and get their securities converted into Dematerialized form.

Auditors & Auditors' Report

Statutory Auditors th The members at the 19 Annual General

Meeting (AGM) of the Bank held on August 18, 2018 had, subject to the approval of RBI, appointed M/s. MSKA & Associates Chartered Accountants as Statutory Auditors for a period of four (4) years to hold ofce till the conclusion of 23rd AGM in connection with the audit of the books of accounts of the Bank. However, their appointment was subject to the approval from Reserve Bank of India as per the resolution passed in the AGM every year. The Reserve Bank of India gave approval of appointment for Financial Year 2018-19. Further the Reserve Bank of India did not approve their appointment for the Financial Year 2019-20 that created a casual vacancy.

The Board in its meeting held on November 08, 2019 lled the casual vacancy by appointing M/s R. K. Kumar & Co. (Presently known as MSKC & Associates) as Statutory auditors of the Bank. M/S MSKC & Associates (Formerly known as R.K Kumar & Associates) Chartered Accountants have audited the accounts of the bank for the Financial Year ending March 31, 2020 as per the accounting standards followed in India.

The appointment of Auditors requires conrmation at the forthcoming Annual General Meeting.

Secretarial Auditors

Pursuant to the provisions of Section 204 of the Companies Act, 2013 and the Companies (Appo in tment and Remunera t ion o f Managerial Personnel) Rules, 2014, the Bank has appointed M/s B. Mathur & Co., Company Secretaries in Practice through it's partner Mr. Brijeshwar Dayal Mathur (FCS No.5734 and COP No. 5334) to conduct Secretarial Audit of the Bank.

The Secretarial Audit Report is annexed herewith as Annexure- F to this report.

There are no qualications, reservations or adverse remarks made by M/s B. Mathur & Co., Company Secretaries, Secretarial Auditors of the Bank, in their Secretarial Audit report.

Directors' Responsibilities Statement

The Board of Directors acknowledge the responsibility for ensuring compliance with the provisions of Section 134(3)(c) read with Section 134(5) of the Companies Act, 2013, in preparation of annual accounts for the nancial year ended 31st March, 2020 and state that:

1. In the preparation of the annual accounts for the nancial year ended 31st March, 2020 the applicable accounting standards had been followed along with proper exp lana t ion re la t i ng to mate r ia l departures;

2. The Directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at 31st March, 2020 and of the prot of the Company for that period;

3. The Directors had taken proper and suffcient care for the maintenance of adequa te accoun t ing records in accordance with the provisions of the Companies Act-2013 for safeguarding the assets of the company and for preventing a n d d e t e c t i n g f r a u d a n d o t h e r irregularities;

4. Directors had prepared the annual accounts on a going concern basis;

5. The Directors had laid down internal nancial controls to be followed by the company and that such internal nancial

- 24 -

controls are adequate and were operating effectively.

6. The Directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

Details in respect of frauds reported by auditors under sub-section (12) of section 143 other than those which are reportable to the Central Government;

There are no frauds reported by Auditors under sub section (12) of section 143 of the Companies Act, 2013

Compliance with Secretarial Standards

The Bank has complied with the applicable Secretarial Standards issued by the Institute of Company Secretaries of India on regular basis.

Green Initiatives

“Unite to make this planet green and clean”

Deforestation is one of the most pressing environmental issue and a harsh reality of the present times. Large-scale deforestation and various other human activities have drasti-cally added to the Global warming and further has badly affected the weather facing almost each year more of break than the normal weather.

Keeping in view the harsh reality the MCA Took a Great action towards it by coming out with the “Green Initiative in the Corporate Governance” through its circular No. 17/2011 dated 21.04.2011 and No. 18/2011 dated

29.04.2011 dated 29.04.2011.

Under this MCA has provided with a welcoming facility of service of notice / documents by a company to its shareholders can now be made through electronic mode. After this great initiative taken by the MCA the companies are no longer required to give Notice including the Annual Return in physical to the stakeholders. They can provide in electronic mode at the Registered E-mail Id of the stakeholders.

In view of the said concern we request all the stakeholders to get their E-mail registered with the Bank so to get the annual Reports at the E-mail id instead through paper mode.

Also, registering your e-mail address with us will ensure that we can directly connect with you and no important communication from our side is missed by you as a shareholders of the Bank.

Acknowledgment

The Board of Directors is grateful to the Government of India, the Reserve Bank of India, various State Governments, SEBI, IRDA and regulatory authorities in India and overseas for their valuable guidance, support and cooperation.

The Directors record their sincere gratitude to the Bank 's shareholders , es teemed customers and all other well-wishers for their continued patronage.

The Directors express their appreciation for the contribution made by every member of the staff in ensuring high level of growth that the Bank has achieved during the year. The Directors look forward to their continued contribution in realization of the corporate goals in the years ahead.

- 25 -

For and on behalf of the Board of Directors

Date:

Place: Madan Gopal Sharma Sarvjit Singh Samra

Part- Time Chairman Managing Director

DIN: 00398326 DIN: 00477444

- 26 -

ANNEXURE - A

Details of Remuneration

Statement under Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 for year ended March 31, 2020

Persons in service for the whole year and drawing emoluments more than Rs.10200000/- per annum

S. No.

Name of the Employee

Designation Date of Joining

the Bank

Qualification Age (Yrs)

Experience (Yrs)

Total (Rs.)

Last employment

1 Sarvjit Singh Samra

Managing Director & CEO

21/07/2003 B.A., M.B.A. 56 20 10705231 -

2 Munish Jain

Chief Financial Officer and Chief Operating Officer

09/10/2000 B.COM, FCA, FCS

44 20 12703688 -

REMUNERATION DETAILS

1. The total Remuneration shown above includes basic salary, allowances, performance bonus, cash allowances in lieu of perquisites or taxable value of perquisites, if availed as computed as per Income-tax rules.

2. All appointments are terminable by one / three month's notice as the case may be on either side.

3. The above value does not include the number of ESOPs granted during the year.

4. Mr. Sarvjit Singh Samra, Managing Director holds 11.76% of the paid up share capital of the Bank.

5. Other than Mr. Sarvjit Singh Samra, none of the employee listed above holds 2% or more of the paid-up share capital of the Bank as at March 31, 2020.

6. None of the employees listed above is a relative of any director of the Bank

ANNEXURE - B

Details of Remuneration

Details pertaining to remuneration as required under section 197(12) read with Rule 5(1) of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014

The percentage increase in remuneration of each Director, Chief Financial Ofcer and Company Secretary during the Financial Year 2019-20, ratio of the remuneration of each Director to the median remuneration of the employees of the Company for the Financial Year 2019-20 are as under:

* Non Executive Directors have received only sitting fees except Mr. Dinesh Gupta who has been paid remuneration of Rs. 6.75 Lakhs as Prot based Commission besides sitting fees for attending the Board Meetings and Committee meetings

Note:

1. For the position held for current year or part thereof, the consideration paid during the complete nancial year has been disclosed above.

2. The above value does not include the number of ESOPs granted during the year.

The ratio of the remuneration of each director to the median remuneration of the employees of the company for the Financial Year:

The median remuneration of employees of the Company during the Financial Year was Rs. 3,00,797 and ratio of the remuneration of each Director to the median remuneration of the employees of the Company for the Financial Year is provided in the above table.

I. The percentage increase in the median remuneration of employees in the Financial Year:

In the Financial Year, there was an increase of 25.22% in the median remuneration of employees.

S.

No.

Name of

Director/KMP

Designation Remunera

tion

Director /

KMP

for the

Financial

Year

2019-20

Remunera

tion

of Director

/ KMP

for the

Financial

Year

2018-19

%

increase

in

Remunera

tion

in the

Financial

Year

2019-20

%

increase

in

Remunera

tion

in the

Financial

Year

2018-19

Ratio of

Remuneration

of each

Director

to median

remuneration

1. Sarvjit Singh

Samra

Managing

Director

10705231

4833552

121.48 121.48 35.59

2. Munish Jain CFO 12703688 9831759 29.21 29.21 42.23

3. Sahil Vijay Company

Secretary (Till May 16,

2019)

1574739

1440314

9.33 9.33 5.24

4. Dinesh Gupta Director 675000* - - - 2.24

5. Amit Sharma Company

Secretary (From May

17, 2019)

688788

- - - 2.29

REMUNERATION DETAILS

- 27 -

II. The number of permanent employees on the rolls of Bank:

There were 1646 permanent employees on the rolls of the Company as on 31st March, 2020.

III. Average percentile increase already made in the salaries of employees other than the managerial personnel in the last Financial Year and its comparison with the percentile increase in the managerial remuneration and justication thereof and point out if there are any exceptional circumstances for increase in the managerial remuneration:

Average percentage increase made in the salaries of employees other than the managerial personnel in the Financial Year i.e. 2019-20 was 47.43% whereas the increase in the managerial remuneration for the Financial Year 2019-20 was 59.40%. The remuneration of the Non - Executive Chairman and the Managing Director is decided based on the individual performance, ination, prevailing industry trends and benchmarks.

The remuneration of Non-Executive Directors consists of commission and sitting fees. While deciding the remuneration, various factors such as Director's participation in Board and Committee Meetings during the year, other responsibilities undertaken, such as Membership or Chairmanship of Committees, time spent in carrying out other duties, role and functions as envisaged in Schedule IV of the Act and Listing Regulations and such other factors as the GNRC may deem t etc. were taken into consideration.

IV. Afrmation that the remuneration is as per the remuneration policy of the Bank:

It is hereby afrmed that the remuneration paid is as per the Policy for Remuneration of the Directors, Key Managerial Personnel and other Employees

- 28 -

FORM NO. MGT 9

EXTRACT OF ANNUAL RETURNAs on Financial Year ended on 31.3.2020

Pursuant to Section 92(3) of the Companies Act, 2013 and rule 12(1) of theCompany (Management & Administration) Rules, 2014

1. REGISTRATION & OTHER DETAILS :

i CIN U65110PB1999PLC022634

ii Registration Date 31-05-1999

iii Name of the Company Capital Small Finance Bank Limited formerly known as Capital Local Area Bank Limited

iv Category/Sub-category of the Company Company Limited by Shares/Indian Non-Government Company

v Address of the Registered ofce & Contact Details

MIDAS Corporate Park, 3rd Floor, 37 G.T. Road, Jalandhar.

vi Whether listed company Listed (Debt Segment)

vii Name, Address & contact details of the Registrear & Transfer Agent, if any.

Link Intime India Pvt. Ltd.C-101, 247 Park, L.B.S. Marg,Vikhroli (West), Mumbai-400083.Tel.: 022-4918 6270Fax : 022 - 4918 6060

2. PRINCIPAL BUSINESS ACTIVITIES OF THE COMPANY All the business activities contrbuting 10% or more of the total turnover of the comapny shall be

stated.

S. No. Name & Description of main products / services

NIC Code of the Product / Service

% to total turnover of the

company

1 Banking & Financial Services 64191 100%

3. PARTICULARS OF HOLDING, SUBSIDARY & ASSOCIATE COMPANIES

S. No. Name & Address of the Company

CIN/GLN Holding / Subsidary / Associate

% of Shares Held

Applicable Section

1 NA NA NA NA NA

- 29 -

Category of

Shareholders

% change

during the

year

Demat Physical Total % of Total

Shares

Demat Physical Total % of Total

Shares

A. Promoters

(1) Indian

a) Individual/HUF 7067851 472347 7540198 26.47 8696246 231627 8927873 26.41 18.40%

b) Central Govt.or

State Govt.- - - - - - - - -

c) Bodies Corporates - - - - - - - - -

d) Bank/FI - - - - - - - - -

e) Any other - - - - - - - - -SUB TOTAL:(A)(1) 7067851 472347 7540198 26.47 8696246 231627 8927873 26.41 18.40%

(2) Foreign

a) NRI- Individuals - - - - - - - - -

b) Other Individuals - - - - - - - - -

c) Bodies Corp. - - - - - - - - -

d) Banks/FI - - - - - - - - -

e) Any other - - - - - - - - -SUB TOTAL (A)(2) 0 0 0 0.00 0 0 0 0.00 0.00%

Total Shareholding of

Promoter

(A)= (A)(1)+(A)(2)

7067851 472347 7540198 26.47 8696246 231627 8927873 26.41 18.40%

B. Public

Shareholding

(1) Institutions

a) Mutual Funds - - - - - - - - -

b) Banks/FI 1349650 - 1349650 4.74 1349650 - 1349650 3.99 -

C) Central govt - - - - 5733 - 5733 0.02 -

d) State Govt. - - - - - - - - -

e) Venture Capital Fund - - - - 175445 - 175445 0.52 -

f) Insurance Companies1394400 1322400 2716800 9.54 2716800 - 2716800 8.04 -

g) FIIs - - - - 3346914 - 3346914 9.90 -

h) Foreign Venture

Capital Funds- - - - - - - - -

i) Others (specify) - - - - - - - - -SUB TOTAL (B)(1): 2744050 1322400 4066450 14.28 7594542 0 7594542 22.46 86.76%

(2) Non Institutions

a) Bodies corporates

i) Indian 655597 1365158 2020755 7.10 1937602 1322400 3260002 9.64 61.33%

ii) Overseas - - - - - - - - -

b) Individuals

i) Individual share-

holders holding nominal

share capital upto Rs.1

lakhs

258703 1966596 2225299 7.81 626422 1607127 2233549 6.61 0.37%

ii) Individuals share-

holders holding nominal

share capital in excess

of Rs.1 lakhs

530859 12082871 12613730 44.29 3227347 8516926 11744273 34.74 -6.89%

c) Others (Partnership

Firm and HUF) 3600 10711 14311 0.05 36267 10711 46978 0.14 228.26%

SUB TOTAL (B)(2): 1448759 15425336 16874095 59.25 5827638 11457164 17284802 51.13 2.43%

Total Public

Shareholding

(B)= (B)(1)+(B)(2)

4192809 16747736 20940545 73.53 13422180 11457164 24879344 73.59 18.81%

C. Shares held by

Custodian for

GDRs & ADRs

Non-Promoters 4192809 16747736 20940545 73.53 13422180 11457164 24879344 73.59 18.81%

Grand Total (A+B+C) 11260660 17220083 28480743 100.00 22118426 11688791 33807217 100.00 18.70%

No. of Shares held at the beginning of the

year

No. of Shares held at the end of the year

4 (i) SHAREHOLDING PATTERN (Equity Share Capital Break up as % to Total Equity)

- 30 -

Sl No. Shareholders Name

No. of

shares

% of total

shares

of the

company

% of shares

pledged

encumbered

to total

shares

No. of

shares

% of total

shares

of the

company

% of shares

pledged

encumbered

to total

shares

1 Sarvjit Singh Samra

(Promoter Group)6251521 21.95 7687396 22.74 22.96

1.1 Sarvjit Singh Samra 1742904 6.12 NIL 3974619 11.76 NIL 128.05

1.2 Navneet Kaur Samra 858400 3.01 NIL 884800 2.62 NIL 3.08

1.3 Amarjit Singh Samra 1640864 5.76 NIL 1640864 4.85 NIL -

1.4 Surinder Kaur Samra 936486 3.29 NIL 936486 2.77 NIL -

1.5 Amardeep Singh Samra 790240 2.77 NIL 0 0.00 NIL (100.00)

1.6 Gagan Samra 132000 0.46 NIL 0 0.00 NIL (100.00)

1.7 Kuljit Singh Hayer 106627 0.37 NIL 206627 0.61 NIL 93.78

1.8 Amarpreet Kaur 44000 0.15 NIL 44000 0.13 NIL -

2 Brig. Swaran Singh Saini

(Retd.) (Promoter)475513 1.67 NIL 475513 1.41 NIL -

3 Gursharan Kaur Dhillon

(Promoter Group)359920 1.26 311720 0.92 (13.39)

3.1 Gursharan Kaur Dhillon 240720 0.85 NIL 230720 0.68 NIL (4.15)

3.2 Randeep Singh Dhillon 81000 0.28 NIL 81000 0.24 NIL -

3.3 Tanveer Singh Dhillon 38200 0.13 NIL 0 0.00 (100.00)

4 Dinesh Gupta

(Promoter Group)

325253 1.14 325253 0.96 -

4.1 Dinesh Gupta 295920 1.04 NIL 295920 0.88 NIL -

4.2 Dinesh Gupta HUF 29333 0.10 NIL 29333 0.09 NIL -

5 Bhagwant Singh Sangha

(Promoter)

39600 0.14 NIL 39600 0.12 NIL -

6 Parkash Kaur Pooni

(Promoter)

88391 0.31 NIL 88391 0.26 NIL -

Total 7540198 26.47 8927873 26.41 18.40

% change

in share

holding

during

the year

Shareholding at the begginning

of the year

Shareholding at the end of the

year

(II) SHAREHOLDING OF PROMOTERS

- 31 -

(iii) CHANGE IN PROMOTERS' SHAREHOLDING

Particulars

No. of

Shares

% of total

shares of the

company

No. of

shares

% of total

shares of the

company

1 At the beginning of the year 6251521 21.95 6251521 21.95

Sarvjit Singh Samra Changes during the year 1435875 22.97 1435875 22.97

(Promoter Group) At the end of the year 7687396 22.74 7687396 22.74


Brig. Swaran Singh Saini Changes during the year Nil Nil Nil Nil

(Retd.) (Promoter) At the end of the year 475513 1.41 475513 1.41


Chanan Singh Dhillon Changes during the year -48200 -13.39 -48200 -13.39

(Promoter Group)* At the end of the year 311720 0.92 311720 0.92


Dinesh Gupta Changes during the year Nil Nil Nil Nil

(Promoter Group) At the end of the year 325253 0.96 325253 0.96


Bhagwant Singh Sangha Changes during the year Nil Nil Nil Nil

(Promoter) At the end of the year 39600 0.12 39600 0.12


Parkash Kaur Pooni Changes during the year Nil Nil Nil Nil

(Promoter) At the end of the year 88391 0.26 88391 0.26

Share holding at the

beginning of the Year

Cumulative Shareholding

during the year

(iv) SHAREHOLDING PATTERN OF TOP TEN SHAREHOLDERS (other than Directors, Promoters & Holders of GDRs & ADRs)

No. of

Shares

% of total

shares of the

company

No. of

Shares

% of total

shares of the

company

No of

shares

% of total

shares of the

company

1 Oman India Joint Investment

Fund II

0 3346914 9.90 3346914 9.90

2 Santokh Singh Chhokar 1760000 6.18 0 0.00 1760000 5.21

3 Pi Ventures LLP 1394400 4.90 292580 0.87 1686980 4.99

4 HDFC Standard Life

Insurance Co. Ltd.

1394400 4.90 0 0.00 1394400 4.12

5 Small Industries

Development Bank of India

1349650 4.74 0 0.00 1349650 3.99

6 ICICI Prudential Life

Insurance co. Ltd.

1322400 4.64 0 0.00 1322400 3.91

7 Amicus Capital Private

Equity I LLP

0 0.00 1511535 4.47 1511535 4.47

8 Rashpal Singh Virk 897729 3.15 0 0.00 897729 2.66

9 Balbir Singh 862400 3.03 -66000 -0.20 796400 2.36

10 Gurinder Mann 391111 1.37 0 0.00 391111 1.16

Total 9372090 32.91 1738115 5.14 11110205 32.86

NameSl.

No.

Share holding at the

beginning of the Year

Change in Shareholding

during the year

Share holding at the end

of the Year

- 32 -

(v) SHAREHOLDING OF DIRECTORS & KMP

Particulars

For Each of the Directors &

KMP

No.of

shares

% of total

shares of the

company

No of shares % of total

shares of the

company


Madan Gopal Sharma Change during the year NIL NIL NIL NIL

At the end of the year 22100 0.07 22100 0.07


Sarvjit Singh Samra Change during the year 2231715 6.60 2231715 6.60

(MD) At the end of the year 3974619 11.76 3974619 11.76

3 At the beginning of the year 295,920 1.04 295920 1.04

Dinesh Gupta Change during the year NIL NIL NIL NIL

At the end of the year 295,920 0.88 295920 0.88


Munish Jain Changes during the Year -20000 (13.05) -20000 (13.05)

(CFO) At the end of the year 133251 0.39 133251 0.39


Amit Sharma* (CS) Change during the year (769) (100.00) (769) (100.00)

At the end of the year 0 0 0 0


Gurpreet Singh Chug Change during the year NIL NIL NIL NIL



Sahil Vijay * Change during the year NIL NIL NIL NIL


Shareholding at the

beginning of the year

Cumulative Shareholding

during the year

Note: * Mr. Sahil Vijay Resigned from the post of CS and Mr. Amit Sharma was appointed as CS of the Bankw.e.f May 17, 2019.

- 33 -

Secured

Loans

excluding

deposits

Unsecured

Loans

Deposits Total

Indebtedness

180.70 177.68 0.00 358.38

0.00 0.00 0.00 0.00

0.50 0.01 0.00 0.51

181.20 177.69 0.00 358.89

133.70 0.00 0.00 133.70

54.20 16.96 0.00 71.16

260.20 160.72 0.00 420.92

0.00 0.00 0.00 0.00

0.83 0.00 0.00 0.83

261.03 160.72 0.00 421.75

Indebtedness of the Company including interest outstanding/accrued but not due for payment

Indebtness at the beginning of the financial year

Change in Indebtedness during the financial year

Additions

Reduction

ii) Interest due but not paid

iii) Interest accrued but not due

Total (i+ii+iii)

i) Principal Amount

Net Change

Indebtedness at the end of the financial year

i) Principal Amount

ii) Interest due but not paid

iii) Interest accrued but not due

Total (i+ii+iii)

5. INDEBTNESS

Sl.No Total Amount

1

10627537

77694

0

2 0

3 0

4 0

5 0

10705231

0

0

0

0

0

10705231

(c ) Profits in lieu of salary under section 17(3) of the Income

Tax Act, 1961

Others, please specify

Total (A)

Stock option

Particulars of Remuneration

Sweat Equity

Commission

as % of profit

others (specify)

Name of the

MD/WTD/Manager

Sarvjit Singh Samra

(Managing Director)

10627537

77694(b) Value of perquisites u/s 17(2) of the Income tax Act, 1961

(a) Salary as per provisions contained in section 17(1) of the

Income Tax. 1961.

Gross salary

6. REMUNERATION OF DIRECTORS AND KEY MANAGERIAL PERSONNEL

A. Remuneration to Managing Director, Whole Time Director and/or Manager:

Ceiling as per the Act: Being a Banking Company, the provisions of Banking regulations Act, 1949 apply to the Bank and any payments to non-executive/independent Directors other than sitting fees can be paid only with the approval of RBI. Independent Directors are paid only sitting fees except for Managing Director who is paid remuneration with the approval of RBI.

(Rs. In Crores)

- 34 -

B. Remuneration to other Directors:

Ceiling as per the Act: Being a Banking Company, the provisions of Banking regulations Act, 1949 apply to the Bank and the remuneration of every Director is subject to the approval of RBI. The remuneration is however well within the limits prescribed under the Companies Act, 2013.

Sl. No.

1 CEO Company

Secretary

(Amit Sharma)

Company

Secretary

(Sahil Vijay)

CFO Total

# 688788 1565122 12642000 14895910

0 9617 61688 71305

0 0 0 0

2 0 0 0 0

3 0 0 0 0

4 0 0 0 0

0 0 0 0

0 0 0 0

5 0 0 0 0

688788 1574739 12703688 14967215Total

Stock Option

Sweat Equity

Commission

as % of profit

others, specify

Others, please specify

Gross Salary

(a) Salary as per provisions contained in

section 17(1) of the Income Tax Act, 1961.

(b) Value of perquisites u/s 17(2) of the

Income Tax Act, 1961

(c ) Profits in lieu of salary under section

17(3) of the Income Tax Act, 1961

Key Managerial PersonnelParticulars of Remuneration

C. Remuneration to Key Managerial Personnel other than MD/Manager/WTD

# Covered in Managing Director Salary disclosed above.

- 35 -

Sl.No

1 M.G Sharma Rakesh

Soni

Harmesh

Khanna

Sham

Singh

Bains

Gurdeep

Singh

Gurpreet

Singh

Chug

Navin

Kumar

Maini

Total

Amount

160000 320000 240000 310000 400000 370000 180000 1980000

0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0

160000 320000 240000 310000 400000 370000 180000 1980000

2 Rahul

Priyadarshi

Mohit

Verma

Mahesh

Parasuraman

Srinath

Srinivasan

Dinesh

Gupta

- - -

90000 90000 0 60000 450000 - - -

0 0 0 0 0 - - -

0 0 0 0 1125000 - - -

90000 90000 0 60000 1575000 - - 1815000

- - - - - - - 3795000

(c ) Others, please specify

Other Non Executive

Directors

Total (2)

Total (B)=(1+2)

(b) Commission

(b) Commission

Total (1)

Independent Directors

Name of the DirectorsParticulars of Remuneration

(c ) Others, please specify.

(Remuneration)

(a) Fee for attending Board

meeting, Committee meetings

(a) Fee for attending Board

meeting, Committee meetings

Type Section of

the

Companies

Act

Brief

Description

Details of

Penalty /

Punishment /

Compounding

fees imposed

Authority

(RD / NCLT

/ Court)

Appeal

made if any

(give

details)

Penalty NIL NIL NIL NIL NIL

Punishment NIL NIL NIL NIL NIL

Compounding NIL NIL NIL NIL NIL







A. COMPANY

B. DIRECTORS

C. OTHER OFFICERS IN DEFAULT

7. PENALTIES/PUNISHMENT/COMPPOUNDING OF OFFENCES

- 36 -

A broad framework is set out by the CSR Policy of the Bank that helps in guiding the Bank's CSR Activities. It sets out the detailed Rules and procedures that needs to be adhered to while implementing the CSR activities that are required to be undertaken as specied in Schedule VII of the Companies Act, 2013 (excluding the activities pursued in the normal course of business) and the expenditure thereon.

The CSR Policy focuses on addressing critical social, environmental and economic needs of the marginalized/underprivileged sections of the society. Through this policy, we aim to align our CSR strategy with the solution to these problems in order to benet the communities at large and create social and environmental impact. The Bank has formed a society named “CAPITAL FOUNDATION” which takes care of all the spending of CSR on behalf of Capital Small Finance Bank Limited. The CSR policy and programs are aligned to comply with the requirements of Section 135 of the Companies Act, 2013 and are monitored by a board level committee. The overview of the projects and programs are mentioned below.

The details on CSR activities taken by the Bank is available on www.capitalbank.co.in

■ The Composition of the CSR Committee :-

● Mr. Sarvjit Singh Samra (Chairman)

● Mr. Sham Singh Bains (Member)

● Mr. Rakesh Soni (Member)

● Mr. Gurdeep Singh (Member)

■ Average net prot of the Company for last three nancial years: 2622.45 lakhs

■ Prescribed CSR expenditure (i.e. 2% of the amount as mentioned above): 52.44 lakhs

■ Detail of CSR spend during the nancial year

● Total amount to be spent for FY 2019-20 52.44 lacs as against the Bank has spent Rs. 52.50 Lakhs through Capital Foundation

● Amount unspent, if any – NIL

■ In case company has failed to spend the two percent of the average net prot for the last three nancial years or any part thereof, the reasons for not spending the amount: NA

■ A responsibility statement of CSR Committee:

The CSR Committee conrms that the implementation and monitoring of the CSR activities of the Bank are in compliance with the CSR objectives and CSR Policy of the Bank.

ANNEXURE - D

Policy Statement


Date:



DIN: 00398326 DIN: 00477444

- 37 -

SPORTS DEVELOPMENT

Detail on CSR Projects undertaken by Capital Foundation

- 38 -

SHIKSHA ABHIYAAN


- 39 -

RELIEF FOR COVID-19 SPREAD


- 40 -

ANNEXURE - E

Related Parties

AOC-2

(Pursuant to clause (h) of sub-section (3) of section 134 of the Act and Rule 8(2) of the Companies (Accounts) Rules, 2014)

Form for disclosure of particulars of contracts/arrangements entered into by the company with related parties referred to in sub-section (1) of section 188 of the Companies Act, 2013 including certain arm's length transactions under third proviso thereto

1. Details of contracts or arrangements or transactions not at arm's length basis - NIL

2. Details of material contracts or arrangement or transactions at arm's length basis - NIL


Date:



DIN: 00398326 DIN: 00477444

- 41 -

To,

The Members,

M/s Capital Small Finance Bank Limited

MIDAS Corporate Park, 3rd Floor,

37 G.T. Road, Jalandhar – 144001, Punjab

We, have conducted the Secretarial Audit of the compliance of applicable statutory provisions and the adherence to good corporate practices by M/s Capital Small Finance Bank Limited (hereinafter called the “Company”). Secretarial Audit was conducted in a manner that provided us a reasonable basis for evaluating the corporate conducts/statutory compliances and expressing our opinion thereon. However, in the backdrop of COVID-19, the physical possession of the documents/ data could not be handed over to us for the purpose of Secretarial Audit. In order to provide accessibility, data sharing arrangements were bought in place to provide us an electronic record of the documents.

Based on our virtual verication of the Company's books, papers, minute books, forms and returns led and other records maintained by the Company and also the information provided by the Company electronically through data sharing arrangements, its ofcers and authorized representatives during the conduct of secretarial audit, we hereby report that in our opinion, the Company has, during the audit period covering the nancial year ended on March 31, 20120 complied with the statutory provisions listed hereunder and also that the Company has proper Board-processes and compliance-mechanism in place to the extent, in the manner and subject to the reporting made hereinafter:

We have examined the books, papers, minute books, forms and returns led and other records maintained by the Company for the nancial year ended on March 31, 2018 according to the provisions of:

(i) The Companies Act, 2013 (the Act) and the rules made thereunder;

(ii) The Securities Contracts (Regulation) Act, 1956 ( 'SCRA') and the rules made thereunder;

(iii) The Depositories Act, 1996 and the Regu la t ions and Bye- laws f ramed thereunder;

(iv) Foreign Exchange Management Act, 1999 and the rules and regulations made thereunder to the extent of Foreign Direct Investment, Overseas Direct Investment and External Commercial Borrowings;

(v) The following Regulations and Guidelines prescribed under the Securities and Exchange Board of India Act, 1992 ('SEBI Act'):-

a. The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011; Not Applicable

b. The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992;

c. The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009; Not Applicable

d. The Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidel ines, 1999; Not Applicable

e. The Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008;

f. The Securities and Exchange Board of India (Registrars to an Issue and Share Transfer Agents) Regulations, 1993 regarding the Companies Act and dealing with client; Not Applicable

g. The Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009; and Not Applicable

h. The Securities and Exchange Board of I n d i a ( B u y b a c k o f S e c u r i t i e s ) Regulations, 1998; Not Applicable

(vi) Reserve Bank of India Act, 1934.

(vii) Banking Regulation Act, 1949.

SECRETARIAL AUDIT REPORTFORM NO. MR–3

SECRETARIAL AUDIT REPORT

FOR THE FINANCIAL YEAR ENDED MARCH 31, 2020[Pursuant to section 204(1) of the Companies Act, 2013 and Rule No. 9 of the Companies

(Appointment and Remuneration of Managerial Personnel) Rule, 2014]

- 42 -

(viii) The Employee Provident Fund Act, Payment of Gratuity Act, Minimum Wages Act, Payment of Wages Act, Payment of Bonus Act, Contract Labour Regulation & Abolition Act and notication issued by labour department from time to time under above acts.

We have also examined compliance with the applicable clauses of the following:

(i) Secretarial Standards issued by The Institute of Company Secretaries of India (SS-1 and SS-2).

(ii) The Listing Agreements entered into by the Company with Stock Exchange(s);

(iii) The Securities and Exchange Board of India (List ing Obligations And Disclosure Requirements) Regulations, 2015

During the period under review, the Company has duly complied with the various applicable provisions of the Acts, Rules, Regulations, Guidelines, Standards, etc. as mentioned above.

We further report that the Board of Directors of the Company is duly constituted with proper balance of Executive Director(s), Non-Executive Directors and Independent Directors. The changes in the composition of the Board of Directors that took place during the period under review were carried out in compliance with the provisions of the Act.

Adequate notices were given to all directors to schedule the Board Meetings along with agenda and detailed notes on agenda which were sent at least seven days in advance, and a system exists for seeking and obtaining further information and clarications on the agenda items before the meeting and for meaningful participation at the meeting.

Majority decisions has been carried through while the dissenting members' views are captured and recorded as part of the minutes.

We further report that there are adequate systems and processes in the Company commensurate with the size and operations of the Company to monitor and ensure compliance with applicable laws, rules, regulations and guidelines.

We further report that during the audit period there were following specic events / actions having a major bearing on the Bank's affairs in pursuance of the above referred laws, rules, regulations, guidelines, etc. which are: -

(i) The Company has appointed Mr. Srinath Srinivasan having DIN: 00107184 as a Non-Executive Additional Director of the Company.

(ii) The Company has appointed Mr. Mahesh Parasuraman having DIN: 00233782 as a Non-Executive Additional Director of the Company.

(iii) The Company has appointed Mr. Mohit Verma having DIN: 02647080 as a Non-Executive Nominee Director - PI Ventures LLP of the Company.

(iv) The Company has appointed Mr. Rahul Priyadarshi having DIN: 06835372 as a Non-Executive Nominee Director - SIDBI of the Company.

(v) The Company has re-appointed Mr. Sarvjit Singh Samra having DIN: 00477444 as the Managing Director & CEO of the Company.

(vi) The Company has re-appointed Mr. Madan Sharma Gopal having DIN: 00398326 as a Non – Execut ive Independent Director of the Company. This is his second term as an Independent Director.

(vii) The Company has appointed Mr. Gurpreet Singh Chug having DIN: 01003380 as a Non-Executive Independent Director of the Company.

(viii) The Company has appointed Mr. Navin Kumar Maini having DIN: 00419921 as a Non-Executive Independent Director of the Company.

(ix) The Company has appointed Mr. Dinesh Gupta having DIN: 00475319 as a Non-Executive Director of the Company.

(x) Mr. Sahil Vijay Singh ceased from the position of the Company Secretary of the Company and in his place Mr. Amit Sharma was appointed as the new Company Secretary of the Company.

(xi) On completion of the tenure and attaining retirement Mr. Inder Krishan Sardana stepped down from the position of the part-time Chairman of the Company.

(xii) During the year under review, M/s R. K. Kumar & Co., Chartered Accountants [FRN: 001595S] were appointed as the Statutory Auditor of the Company against the casual vacancy caused due to non – approval from the Reserve Bank of India fo r appo in tment o f M/s MSKA & Associates, Chartered Accountants.

(xiii) During the year under review, the Company executed a Shareholder's Agreement (“SHA”) between Amicus

- 43 -

Capital Private Equity I LLP, Amicus Capital Partners India Fund I, PI Ventures LLP, Small Industries Development Bank of India (“SIDBI”) and Oman India Joint

thInvestment Fund II dated 7 November, 2019.

(xiv) During the under review, the Board altered the Articles of Association of the Company pursuant to the said SHA, which is subject to the approval of the Shareholders', Registrar of Companies and the Reserve Bank of India (“RBI”) albeit as informed, the RBI approval was received till the date of the report.

(xv) During the year under review and in accordance with the provisions of Section 180 (1) (c) of the Companies Act, 2013 read with relevant rules and all other applicable provisions, if any, the Company increased their borrowing power with a cap of Rs. 750/- crores (Rupees Seven Hundred and Fifty Crore Only) outstanding at any point of time over and above the aggregate of the Paid-up Capital of the Bank and its free reserves which shall exclude all deposits received from Public, temporary loans obtained by the Bank from other banks in the ordinary course of its business, and such other exclusions as may be provided under the law on such terms and conditions as the Board may consider necessary and expedient in the best interest of the Bank.

(xvi) The Company vide Special Resolution passed by the members of the Company in

an Extra Ordinary General Meeting dated th18 June, 2019 has approved issuance of

shares up to 16,98,307 Equity Shares of the Bank having face value of Rs. 10/- (Rupee Ten Only) each and each at a premium of Rs. 242/- (Rupees Two Hundred Forty Two Only) on a private placement basis aggregating to Rs. 42,79,73,364/- (Rupees Forty Two Crore Seventy Nine Lakhs Seventy Three Thousand Three Hundred and Sixty Four Only) out of which the Company has issued and allotted 16,08,508 Equity Shares of the Bank aggregating to Rs. 40,53,44,016/- (Forty Crore Fifty Three Lakhs Forty Four Thousand and Sixteen Only) to the respective Financial Investors

thon 25 June, 2019.

(xvii) Further, the Company vide Special Resolution passed by the members of the

thCompany in the 20 Annual General th Meeting of the Company dated 27

September, 2019 has also issued 39,38,462 Equity Shares of the Bank having face value of Rs. 10/- (Rupees Ten Only) each and each at a premium of Rs. 242/- (Rupees Two Hundred Forty Two Only) by way of Preferential Issue on private placement basis aggregating to Rs. 99,24,92,424/- (Rupees Ninety Nine Crore Twenty Four Lakhs Ninety Two Thousand Four Hundred and Twenty Four Only) which was allotted to the respective

nd Financial Investors on 22 November, 2019.

For B Mathur & Co.,Company Secretaries

Date: May 15, 2020Sonakshi ChaurasiaPlace: New Delhi(Partner) ACS: 58636 COP No.: 22578

- 44 -

India's Economic Performance in 2019-20

The discussion is divided in two parts as pre and post outbreak of pandemic. The pre outbreak events are lined up as:

● India's GDP growth moderated to 4.8 % in H1 of 2019-20, amidst a weak environment for global manufacturing, trade and demand.

● Real consumption growth has recovered in Q2 of 2019-20, cushioned by a signicant growth in government nal consumption.

● Growth for 'Agriculture and allied activities' and 'Public administration, defense, and other services' in H1 of 2019-20 was higher than in H2 of 2018-19.

● India's external sector gained further stability in H1 of 2019-20:

● Current Account Decit (CAD) narrowed to 1.5 % of GDP in H1 of 2019-20 from 2.1 % in 2018-19.

● Impressive Foreign Direct Investment (FDI).

● Accretion of foreign exchange reserves.

● Deceleration in GDP growth can be understood within the framework of a slowing cycle of growth.

Monetary Management and Financial Intermediation

● Monetary policy

● Remained accommodative in 2019-20.

● Repo rate was cut by 110 basis points in four consecutive MPC meetings in the nancial year due to slower growth and lower ination.

● However, it was kept unchanged in the fth meeting held in December 2019.

● In 2019-20, liquidity conditions were tight for initial two months; but subsequently it remained comfortable.

● The Gross Non Performing Advances ratio

● Remained unchanged for Scheduled Commercial banks at 9.3% between March and September 2019

● Increased slightly for the Non-Banking Financial Corporations (NBFCs) from 6.1% in March 2019 to 6.3% in September 2019.

● Credit growth

● The nancial ows to the economy remained constrained as credit growth declined for both banks and NBFCs.

● Bank Credit growth (YoY) moderated from 12.9% in April 2019 to 7.1% as on December 20, 2019.

● Capital to Risk-weighted Asset Ratio of SCBs increased from 14.3% to 15.1% between March 2019 and September 2019.

Prices and Ination

● Ination Trends:

■ Ination witnessing moderation since 2014

■ Consumer Price Index (CPI) ination increased from 3.7 per cent in 2018-19 (April to December, 2018) to 4.1 per cent in 2019-20 (April to December, 2019).

■ WPI ination fell from 4.7 per cent in 2018-19 (April to December, 2018) to 1.5 per cent during 2019-20 (April to December, 2019).

Banking

In 2019, India completed the 50th anniversary of bank nationalization. India's banking sector is disproportionately under-developed given the size of its economy. With the cleaning up of the banking system and the necessary legal framework such as the Insolvency and Bankruptcy Code (IBC), the banking system must focus on scaling up efciently to support the economy.

“It is not by augmenting the capital of the country, but by rendering a greater part of that capital active and productive than would otherwise be so, that the most judicious operations of banking can increase the industry of the country.” Adam Smith.

Banking industry is an engine of economic growth and the present times require the banking industry to come up as a catalyst of nancial stability and economic growth by multi-dimensional approach by efciently managing multiple risks such as liquidity, solvency, capital adequacy, asset quality, prudent decision making, transparency, highest standards of corporate governance, regulatory compliances, high standards to ethical behavior with stronger than ever impetus on technological developments to adapt and develop resilient business models to partner in growth of the society as well as to build their own brand equity.

MANAGEMENT DISCUSSION & ANALYSIS

- 45 -

Covid 19 pandemic and its Impact

1. Global Impact

As the businesses lose revenue, unemployment is likely to increase sharply, transforming a supply-side shock to a wider demand-side shock for the economy. A sharp decline in consumer spending in the European Union and the United States will reduce imports of consumer goods from developing countries. Further, developing countries, particularly those dependent on tourism and commodity exports, face heightened economic risks. The collective goal must be a resilient recovery which puts the planet back on a sustainable track. A well-designed scal stimulus package, prioritizing health spending to contain the spread of the virus and providing income support to households most affected by the pandemic would help to minimize the likelihood of a deep economic recession.

2. The learning curve

Every crisis serves as a learning opportunity for organizations, and this pandemic is proving to be quite the lesson. Here's how organizations are guring out their next moves.

3. Remote working

Ever since the rst COVID-19 case was conrmed in India, numerous companies have instituted a 'work from home' drill using critical resources to understand whether remote working conditions are feasible

4. Safety measures for employees

Some organizations are implementing measures like temperature screening, disinfection of ofce premises, setting up COVID-19 response teams, distribution of COVID-19 precautionary packages.

5. Opportunity in a crisis

L ike Ind ia , severa l in ternat iona l economies are becoming cognizant of the risk they face by being overly dependent on one market. Making the current situation a learning opportunity, we believe this is the time India can promote Make in India campaign with greater vigil and enthusiasm.

Impact on India and impetus on Make in India

The COVID-19 pandemic has set foot in India as across the globe and is likely to impact the

country's economy across industries and business formats. The coronavirus pandemic is a "severe demand shock" for the Indian economy and could lead to moderation in the country's GDP growth as the coronavirus-induced lockdown is causing signicant disruption across multiple sectors.

Having said that, the impact so far looks muted and government has acted swiftly which seems to be working well for the medium to long term prospects of the economy. Although there is no room for complacency and neither the government is getting any bit complacent, the central government, state governments and the industry groups are joining hands to subside the impact of the pandemic and to boost post facto recovery and normalization in the economic activity.

The fast changing global socio political scenario can provide once in a lifetime opportunity to India to take global center stage in business and political linkages. India can grab this golden opportunity by provide ease of business for global business houses and encourage make in india campaign with a renewed vigor and vision.

Impact on BFSI

The Government of India and RBI has introduced various economic and scal stimulus measures to tide over the COVID-19 crisis. To navigate through these unprece-dented times, the BFSI needs to focus on liquidity, credit risk, well-being of its employees along with the quality of nancial reporting and disclosures. As Coronavirus continues to spread, and more information comes to light, the BFSI sector with 31 March 2020 year-end, needs to consider this impact on their business and business prospects.

Impact on banks

The Reserve Bank of India has taken certain measures to give relief to the lending institutions in the areas of liquidity, regulation and supervision, and nancial markets. In light of these measures, banks need to consider on aspects such as business continuity, liquidity and credit risk assess-ment etc.

While banks are not as exposed as the corporate sector during the initial stage of the pandemic, the strain on lenders could ultimately be profound. Banks face a second-order hit compared with the corporate and

- 46 -

household sectors. The economic storm created by COVID-19 will test the ratings resilience of the region's 20 banking sectors. Banks in the country are likely to witness a spike in their non-performing assets ratio by 1.9 per cent and credit cost ratios by 130 basis point in 2020, following the economic slowdown on account of COVID-19 crisis.

The resilience of banks' asset quality in 2020 hinges in part on the success of governments' and regulators' policy responses. These measures are in early stages. Some have started, some are in planning, and we suspect many more may be in the wings.

Response to Covid-19 and Way Forward for Banking Sector

When the COVID-19 situation is past us, it is expected that the Indian Banks will shift gears to move away from traditional forms of banking. The traditional banks will stand the opportunity to leapfrog adopting cutting edge banking technologies and blaze the digital transformation trail. Currently, 27 of Indian public sector (PSU) banks are on a path of consolidation to 10 large banks. It is an opportune time for the PSU's to explore better technology integration and customer adoption. Other Indian banks (both public and private) which are already online with some core banking functions will focus on a complete transition by digitization of all their functions, processes and systems. Legacy Indian banks and nancial institutions will also look at collaboration with the new entrants and ntechs. Such necessity-driven partnerships will drive innovation and jointly reap the benets of the large customer base of the banks and the new technologies of the ntechs. The COVID-19 situation will not only accelerate the adoption of technology, but will renew focus on the following four key areas of banking:

1. Discretionary Spending

a. For individuals, health and safety will become No.1 on their agenda from the 3rd of 4th place. There will be more spending on this area and

reduction in other discretionary spends.

b. The ticket size of spending will drop for a while. People will spend on cheaper goods than on expensive goods, or delay spending for a while.

c. Extreme acceleration in digital economy. I.e. Home education, home entertainment, home tness, etc.

d. General Trust decit. There will be trust decit amongst stakeholders like vendors, customers, employees, borrowers, banks, etc.

2. Liquidity and P&L

a. Segregate Good Costs and Bad Costs

b. Good costs (Eg. Digitization, tech costs, d ig i ta l market ing, best employees, etc) need to be insulated and protected

c. Bad Costs (Eg. Fancy ofce, u n n e c e s s a r y s p e n d i n g , b a d performers, traditional working methods) need to be ruthlessly eliminated. Don't be emotional about non-core businesses. Concentrate on core business.

3. Maintain Good behaviour – Have frank and open conve rsa t i on w i th a l l stakeholders like suppliers, employees, etc and try to nd the middle ground, so that the burden can be shared justly.

4. Government Stimulus

a. Economy was in poor shape even before Covid. The govt has little leeway to provide large stimulus.

b. Government earns about $60-70 billion a week from taxes. Imagine what a hit a 5-week lockdown will have. Size of Indian economy is about $3 Trillion. In some scenarios, it is predicted that Government could take a hit of nearly $1 Trillion.

c. Government needs to concentrate on mass health and mass welfare.


Date:



DIN: 00398326 DIN: 00477444

- 47 -

Report on the Audit of the Financial Statements

Opinion

We have audited the nancial statements of Capital Small Finance Bank Limited (“the Bank”), which comprise the Balance Sheet as at March 31, 2020, the Prot and Loss Account, Cash Flow Statement for the year then ended, and notes to the nancial statements, including a summary of signicant accounting policies and other explanatory information.

In our opinion and to the best of our information and according to the explanations given to us, the aforesaid nancia l s tatements g ive the information required by the Banking Regulation Act, 1949 as well as the Companies Act, 2013 (“the Act”) in the manner so required for Banking Companies and give a true and fair view in conformity with the accounting principles generally accepted in India, of the state of affairs of the Bank as at March 31, 2020 and its prot and its cash ows for the year ended on that date.

Basis for Opinion

We conducted our audit in accordance with the Standards on Auditing (SAs) specied under Section 143(10) of the Act. Our responsibilities under those Standards are further described in the Auditors' Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Bank in accordance with the

Code of Ethics issued by the Institute of Chartered Accountants of India (“the ICAI”) together with the ethical requirements that are relevant to our audit of the nancial statements under the provisions of the Act and the Rules thereunder, and we have fullled our other ethical responsibilities in accordance with these requirements and the Code of Ethics. We believe that the audit evidence we have obtained is sufcient and appropriate to provide a basis for our opinion.

Emphasis of Matter

We draw attention to Schedule 18(3.1) to the nancial statements, which describes that the extent to which the COVID-19 Pandemic will impact the Bank's nancial statements will depend on future developments, which are highly uncertain. Considering the circumstances as described in Schedule 18(3.1) to the nancial statements, the Bank has made a provision of Rs. 7.7 Crores for the year ended March 31, 2020.

Our opinion is not modied in respect of this matter.

Key Audit Matter

Key audit matter is the matter that, in our professional judgment, were of most signicance in our audit of the nancial statements of the current year. This matter was addressed in the context of our audit of the nancial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on this matter.

INDEPENDENT AUDITOR'S REPORTTo the members of Capital Small Finance Bank Limited

Identication of Non-Performing Asset ('NPA') and Provision on Advances

Total Loans and Advances (Net of Provision) as at March 31, 2020: Rs. 3,308.31 crores

Gross NPA as at March 31, 2020: Rs. 58.51 crores

Provision for NPA as at March 31, 2020: Rs. 17.26 crores

Refer Schedule 9, Schedule 17(7), and Schedule 18(3.2) to the nancial statements.

Identication of NPA and measurement of provision

on account of NPA is made based on the assessment

of various criteria stipulated in the Reserve Bank of

India (“the RBI”) guidelines on 'Prudential Norms on

Income Recognition, Asset Classication and

Provisioning pertaining to advances' (“IRACP”). The

Bank is required to have in place a Board approved

policy as per the IRACP guidelines for NPA

identication and provision.

Our audit procedures in respect of this area included:

1. Veried the design and operating effective-ness of

key internal controls (including application controls)

over approval, recording and recovery of loans,

monitoring process for overdue/ stressed accounts,

identication of NPA, measurement of provision on

account of NPA and valuation of security and

collateral against loans.

Key Audit Matter How our audit addressed the key audit matter

- 48 -

The IRACP guidelines stipulate the requirement to

identify NPA through dened criteria such as past

due status, out of order status etc. Provisions in

respect of such NPAs are made based on minimum

provisioning levels prescribed under the IRACP and

Bank's internal credit policy. The provision for NPAs

are also based on the valuation of the security

available. Further, NPA classication is made

borrower wise whereby if one facility to the borrower

becomes NPA, then all facilities to such a borrower

will be treated as an NPA.

The Bank is also required to apply its judgement to

determine the identication and provision required

against NPA by applying quantitative as well as

qualitative factors. The risk of identication of NPA is

affected by factors like stress and liquidity concerns

in certain sectors.

The Bank has framed policies in line with the RBI's

guidelines vide 'COVID-19 – Regulatory Package'

and 'COVID-19 Regulatory Package - Asset

Classication and Provisioning' thereby providing

moratorium as a relief measure to the borrowers and

creating required provisions against these reliefs.

We have identied 'Identication of NPA and

Provisioning on Advances' as a key audit matter in

view of the signicant level of estimation involved, as

well as the stringent compliances laid down by the

RBI in this regard

Veried application controls includes testing of

au tomated cont ro ls , repor ts and sys tem

reconciliations.

2. Evaluated the governance process and review of

controls over identication of NPA, measurement of

provision and basis of provisioning in accordance

with the Bank's policy.

3. An inclusive list of substantive procedures

performed is as below:

• For borrowers, assessed the appropriateness of

asset classication and adequacy of related

provisioning by performing procedures such as

computation of overdue ageing, assessment of

borrower level NPA ident icat ion and

verication of applicable provision rates as per

IRACP norms and Bank's Policy on test check

basis;

• Veried performing loans on test check basis to

assess whether they should be classied as

NPA;

• Reviewed the valuation of collateral as carried

out by the Bank on test check basis;

• Performed inquiries with the Management of the

Bank to ascertain if there were indicators of

stress, perceived credit risk or occurrence of an

event of default in any particular class of

borrowers, product category or loan account

that warrants NPA assessment;

• Veried standard and overdue accounts on test

check basis to assess compliance with the RBI

guidelines vide its circulars 'COVID-19 –

Regu la to ry Package ' and 'COVID-19

Regulatory Package - Asset Classication and

Provisioning'.

4. Veried the disclosures in accordance with

relevant accounting standards and the RBI

requirements relating to NP

Information Other than the Financial Statements and Auditors' Report Thereon

The Bank's Board of Directors is responsible for the other information. The other information comprises the Director's Report but does not include the nancial statements and our auditors' report thereon.

Our opinion on the nancial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the nancial statements, our responsibility is to read the other

information and, in doing so, consider whether the other information is materially inconsistent with the nancial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the Management and Those charged with Governance for Financial Statements

- 49 -

The Bank's Board of Directors is responsible for the matters stated in Section 134(5) of the Act with respect to the preparation of these nancial statements that give a true and fair view of the nancial position, nancial performance and cash ows of the Bank in accordance with the accounting principles generally accepted in India, including the Accounting Standards specied under Section 133 of the Act and provisions of Section 29 of the Banking Regulation Act, 1949 and circulars, guidelines and directions issued by the Reserve Bank of India from time to time as applicable to Bank. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding of the assets of the Bank and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting pol icies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal nancial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the nancial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error.

In preparing the nancial statements, the Board of Directors is responsible for assessing the Bank's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors either intends to liquidate the Bank or to cease operations, or has no realistic alternative but to do so.

Those Board of Directors are also responsible for overseeing the Bank's nancial reporting process.

Auditors' Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the nancial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an Auditors' report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with SAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to inuence the economic decisions of users taken

on the basis of these nancial statements.

As part of an audit in accordance with SAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

· Identify and assess the risks of material misstatement of the nancial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufcient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

· Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances. Under Section 143(3)(i) of the Act, we are also responsible for expressing our opinion on whether the Bank has internal nancial controls with reference to nancial statements in place and the operating effectiveness of such controls.

· Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Management.

· Conclude on the appropriateness of the Management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast signicant doubt on the Bank's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our Auditors' report to the related disclosures in the nancial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors' report. However, future events or conditions may cause the Bank to cease to continue as a going concern.

· Evaluate the overall presentation, structure and content of the nancial statements, including the disclosures, and whether the nancial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with those charged with

- 50 -

governance regarding, among other matters, the planned scope and timing of the audit and signicant audit ndings, including any signicant deciencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our indepen-dence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most signicance in the audit of the nancial statements for the nancial year ended March 31, 2020 and are therefore the key audit matters. We describe these matters in our auditors' report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benets of such communication.

Other Matter

The nancial statements of the Bank for the year ended March 31, 2019, were audited by another auditor whose report dated May 17, 2019 expressed an unmodied opinion on those nancial statements. Our opinion is not modied in respect of this matter.

Report on Other Legal and Regulatory Requirements

1. The Balance Sheet and the Prot and Loss Account have been drawn up in accordance with the provisions of Section 29 of the Banking Regulation Act, 1949 read with Section 133 of the Companies Act, 2013 read with Rule 7 of the Companies (Accounts) Rules, 2014.

2. As required by sub-section 3 of Section 30 of the Banking Regulation Act, 1949, we report that:

a) We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit and have found them to be satisfactory;

b) The transactions of the Bank, which have

come to our notice during the course of our audit, have been within the powers of the Bank;

c) Since the key operations of the Bank are automated with the key applications integrated to the core banking system, the audit is carried out centrally as all the necessary records and data required for the purposes of our audit are available therein. However, during the course of our audit we visited 12 branches.

3. As required by Section 143(3) of the Act, we report that:

a) We have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit;

b) In our opinion, proper books of account as required by law have been kept by the Bank so far as it appears from our examination of those books;

c) The Balance Sheet, the Prot and Loss Account and the Cash Flow Statement dealt with by this Report are in agreement with the books of account;

d) In our opinion, the aforesaid nancial statements comply with the Accounting Standards specied under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014 to the extent they are not inconsistent with the accounting policies prescribed by the Reserve Bank of India;

e) On the basis of the written represen-tations received from the directors as on March 31, 2020 taken on record by the Board of Directors, none of the directors is disqualied as on March 31, 2020 from being appointed as a director in terms of Section 164 (2) of the Act;

f) With respect to the adequacy of the internal nancial controls with reference to nancial statements of the Bank and the operating effectiveness of such controls, refer to our separate Report in “Annexure A”;

g) With respect to the other matters to be included in the Auditors' Report in accordance with the requirements of section 197(16) of the Act, as amended;

The Bank is a Banking Company as dened under Banking Regulation Act, 1949. Accordingly, the requirements

- 51 -

For MSKC & Associates (Formerly known as R. K. Kumar & Co.)


ICAI Firm Registration Number: 001595S

Tushar Kurani

Partner

Membership No. 118580

UDIN: 20118580AAAABH7065

Mumbai

May 16, 2020

prescribed under section 197 of the Companies Act, 2013 do not apply; and

h) With respect to the other matters to be included in the Auditors' Report in accordance w i th Ru le 11 o f the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our knowledge and belief and according to the information and explanations given to us:

I. The Bank does not have any pending litigations which would impact its nancial position;

ii. The Bank has made provision as

at March 31, 2020, as required under the applicable law or accounting standard, for material foreseeable losses, if any, on long term contracts. The Bank does not have any derivative contracts as at March 31, 2020;

iii. There has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Bank.

- 52 -

We have audited the internal nancial controls with reference to nancial statements of Capital Small Finance Bank Limited (“the Bank”) as of March 31, 2020 in conjunction with our audit of the nancial statements of the Bank for the year ended on that date.

Management's Responsibility for Internal Financial Controls

The Bank's Management is responsible for establishing and maintaining internal nancial controls based on the internal control with reference to nancial statements criteria established by the Bank considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting issued by the Institute of Chartered Accountants of India (“the I C A I ” ) ( “ t h e G u i d a n c e N o t e ” ) . T h e s e r e s p o n s i b i l i t i e s i n c l u d e t h e d e s i g n , implementation and maintenance of internal nancial controls that were operating effectively for ensuring the orderly and efcient conduct of its business, including adherence to Bank's policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable nancial information, as required under the Act.

Auditors' Responsibility

Our responsibility is to express an opinion on the Bank's internal nancial controls with reference to nancial statements based on our audit. We conducted our audit in accordance with the Guidance Note and the Standards on Auditing, issued by the ICAI and deemed to be prescribed under section 143(10) of the Act, to the extent applicable to an audit of internal nancial controls. Those Standards and the Guidance Note require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether internal nancial

controls with reference to nancial statements was established and maintained and if such controls operated effectively in all material respects.

Our audit involves performing procedures to obtain audit evidence about the adequacy of the internal nancial controls with reference to nancial statements and their operating effectiveness. Our audit of internal nancial controls with reference to nancial statements included obtaining an understanding of internal nancial controls with reference to nancial statements, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. The procedures selected depend on the auditors' judgement, including the assessment of the risks of material misstatement of the nancial statements, whether due to fraud or error.

We believe that the audit evidence we have obtained is sufcient and appropriate to provide a basis for our audit opinion on the Bank's internal nancial controls with reference to nancial statements.

Meaning of Internal Financial Controls With reference to Financial Statements

A Bank's internal nancial control with reference to nancial statements is a process designed to provide reasonable assurance regarding the reliability of nancial reporting and the preparation of nancial statements for external purposes in accordance with generally accepted accounting principles. A Bank's internal nancial control with reference to nancial statements includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reect the transactions and dispositions of the assets of the Bank; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of nancial statements in accordance with generally

ANNEXURE A TO THE INDEPENDENT AUDITORS' REPORT OF EVEN DATE ON THE FINANCIAL STATEMENTS OF CAPITAL SMALL FINANCE BANK LIMITED

[Referred to in paragraph 3(f) under 'Report on Other Legal and Regulatory Requirements' in the Independent Auditors' Report of even date to the Members of Capital Small Finance Bank Limited on the Financial Statements for the year ended March 31, 2020]

Report on the Internal Financial Controls under Clause (i) of Sub-section 3 of Section 143 of the Companies Act, 2013 (“the Act”)

- 53 -

accepted accounting principles, and that receipts and expenditures of the Bank are being made only in accordance with authorizations of the Management and the directors of the Bank; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Bank's assets that could have a material effect on the nancial statements.

Inherent Limitations of Internal Financial Controls With reference to nancial statements

Because of the inherent limitations of internal nancial controls with reference to nancial statements, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may occur and not be detected. Also, projections of any

evaluation of the internal nancial controls with reference to nancial statements to future periods are subject to the risk that the internal nancial control with reference to nancial statements may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Opinion

In our opinion, the Bank has, in all material respects, an adequate internal nancial controls with reference to nancial statements and such internal nancial controls with reference to nancial statements were operating effectively as at March 31, 2020, based on the internal control with reference to nancial statements criteria established by the Bank considering the essential components of internal control stated in the Guidance Note.

For MSKC & Associates (Formerly known as R. K. Kumar & Co.)


ICAI Firm Registration Number: 001595S

Tushar Kurani

Partner

Membership No. 118580

UDIN: 20118580AAAABH7065

Mumbai

May 16, 2020

- 54 -

BALANCE SHEET AS ON MARCH 31, 2020

Particulars As onMarch 31, 2020

As onMarch 31, 2019

CAPITAL AND LIABILITIES

Capital 1 338,072 284,807

Reserves and Surplus 2 3,729,729 2,218,412

Deposits 3 44,466,233 36,672,580

Borrowings 4 4,209,200 3,583,800

Other Liabilities and Provisions 5 555,532 452,445

Total 53,298,766 43,212,044

ASSETS

Cash and Balances with Reserve Bank of India 6 2,212,330 2,148,643

Balances with Banks and Money at Call and Short Notice 7 5,945,162 4,967,638

Investments 8 10,518,746 8,625,797

Advances 9 33,083,085 25,990,453

Fixed Assets 10 906,236 835,189

Other Assets 11 633,207 644,324

Total 53,298,766 43,212,044

Contingent Liabilities 12 370,710 420,934

Bills for Collection - -

Significant Accounting Policies and Notes forming part of 17 & 18

the Financial Statements

The schedules referred to above form an integral part of the Balance Sheet. The Balance Sheet has been

prepared in conformity with Form A to the Third Schedule of the Banking Regulation Act, 1949.

(` IN THOUSANDS)

As per our report of even date For MSKC & Associates For and on behalf of The Board of(Formerly known as R.K.Kumar & Co.) Capital Small Finance Bank LimitedChartered AccountantsFirm Registration Number: 001595S

Sarvjit Singh Samra Dinesh Gupta Gurpreet Singh Chug Managing Director Director DirectorTushar Kurani DIN: 00477444 DIN: 00475319 DIN: 01003380Partner Membership No.: 118580

Munish Jain Amit SharmaDate : May 16, 2020 Chief Operating Ofcer & Company SecretaryPlace : Mumbai Chief Financial Ofcer Mem. No. ACS38217

Date : May 16, 2020 Place : Jalandhar

Schedule

ANNUAL ACCOUNTS

- 55 -

PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2020

Particulars Schedule Year EndedMarch 31, 2020

Year EndedMarch 31, 2019

INCOMEInterest Earned 13 4,581,348 3,462,913 Other Income 14 429,550 313,067 Total 5,010,898 3,775,980

EXPENDITUREInterest Expended 15 2,855,120 2,111,511 Operating Expenses 16 1,633,331 1,321,699 Provisions and Contingencies (Refer Note 10-Schedule 18) 268,626 148,629Total 4,757,077 3,581,839

PROFITNet Profit for the year 253,821 194,141 Profit brought forward 837,669 731,555Total 1,091,490 925,696

APPROPRIATIONSTransfer to Statutory Reserve 63,455 48,535 Transfer to Special Reserve 1,119 695 Transfer to/(from) Investment Reserve Account - (35)Transfer to Investment Fluctuation Reserve 31,937 12,074 Dividend 6,018 22,196 Tax on Dividend 1,237 4,562 Balance carried over to Balance Sheet 987,724 837,669 Total 1,091,490 925,696

EARNINGS PER SHAREBasic (`) 8.18 6.82Diluted (`) 8.16 6.82Face value (`) 10.00 10.00

Significant Accounting Policies and Notes forming part of 17 & 18the Financial Statements

The schedules referred to above form an integral part of the Balance Sheet. The Balance Sheet has been prepared in conformity with Form A to the Third Schedule of the Banking Regulation Act, 1949.

(` IN THOUSANDS)


Sarvjit Singh Samra Dinesh Gupta Gurpreet Singh Chug Managing Director Director DirectorTushar Kurani DIN: 00477444 DIN: 00475319 DIN: 01003380Partner Membership No.: 118580 Munish Jain Amit Sharma Chief Operating Ofcer & Company SecretaryDate : May 16, 2020 Chief Financial Ofcer Mem. No. ACS38217Place : Mumbai Date : May 16, 2020 Place : Jalandhar

- 56 -

ANNUAL ACCOUNTS

Particulars Year EndedMarch 31, 2020


CASH FLOW FROM OPERATING ACTIVITIESNet Profit before Taxes 345,822 269,245 Adjustment For:Depreciation Charge on Fixed Assets 153,373 117,658 Loan Loss Provision 176,690 66,137 (Profit)/Loss on Sale of Fixed Assets 175 2,050 Employee Stock Option Expense 16,125 - Depreciation on Investments (65) 7,388

692,120 462,478 Adjustment For: (Increase)/Decrease in Term Deposits with other Banks (144,891) (966,443)(Increase)/Decrease In Investments (1,907,454) 338,706 (Increase)/Decrease In Advances (7,167,852) (7,557,922)Increase/(Decrease) In Deposits 7,793,653 8,167,380 (Increase)/Decrease In Other Assets 46,493 (222,670)Increase/(Decrease) In Other Liabilities and Provisions 1,617 (28,588)

(686,314) 192,941 Direct Taxes Paid (net of refunds) (112,807) (110,228)

NET CASH FLOW FROM/(USED IN) OPERATING ACTIVITIES (799,121) 82,713

CASH FLOW FROM INVESTING ACTIVITIES Purchase of Fixed Assets (225,631) (310,396)Proceeds from Sale of Fixed Assets 1,036 1,222

NET CASH FLOW USED IN INVESTING ACTIVITIES (224,595) (309,174)

CASH FLOW FROM FINANCING ACTIVITIES Net Proceeds from equity shares issued on private placement basis under 1,301,891 -preferential allotmentNet Proceeds from the issue of Unsecured Redeemable (169,600) 614,500Non Convertible Bonds/(Redemption of Bonds)Net Increase/(Decrease) in Borrowings / Refinance 795,000 747,292 Dividend Payment (Including Tax on Dividend) (7,255) (26,758)

NET CASH FLOW FROM FINANCING ACTIVITIES 1,920,036 1,335,034

Net Increase / (Decrease) In Cash & Cash Equivalents 896,320 1,108,573

Cash & Cash Equivalents in the beginning of the year 2,927,844 1,819,271 Cash & Cash Equivalents at the end of the year 3,824,164 2,927,844

NOTES : 1. The above Cash Flow Statement has been prepared under the indirect method as set out in Accounting Standard 3

on Cash Flow Statements specified under Section 133 of the Companies Act, 2013 read with Rule 7 of the Companies (Accounts) Rules, 2014 and the Companies (Accounting Standards) Amendment Rules, 2016.

2. Figures in bracket indicates cash outflow.

(` IN THOUSANDS)


Sarvjit Singh Samra Dinesh Gupta Gurpreet Singh Chug Managing Director Director DirectorTushar Kurani DIN: 00477444 DIN: 00475319 DIN: 01003380Partner Membership No.: 118580 Munish Jain Amit Sharma Chief Operating Ofcer & Company SecretaryDate : May 16, 2020 Chief Financial Ofcer Mem. No. ACS38217Place : Mumbai Date : May 16, 2020 Place : Jalandhar

- 57 -

ANNUAL ACCOUNTSCASH FLOW STATEMENT FOR THE YEAR ENDED MARCH 31, 2020

SCHEDULES FORMING PART OF THE FINANCIAL STATEMENTS AS ON MARCH 31, 2020



SCHEDULE - 1 CAPITAL

Authorised Capital 350,000 350,000

35,000,000 equity shares of Rs. 10 each

Issued, Subscribed and Paid-up Capital

33,807,217 equity shares issued of Rs. 10 each fully paid-up 338,072 284,807

(Previous year 28,480,743 equity shares of Rs. 10 each)

(Of the above shares 2,769,543 shares are alloted as fully

paid-up equity shares by way of bonus shares)

Total 338,072 284,807

SCHEDULE 2 - RESERVES AND SURPLUS

I Statutory Reserve

Opening Balance 407,769 359,234

Additions during the year 63,455 48,535

Total 471,224 407,769

II Capital Reserve

Opening Balance 159 159

Total 159 159

III Special Reserve


Additions during the year 1,119 695

Total 11,453 10,334

IV Investment Reserve Account


Deductions during the year - (35)

Total 13,142 13,142

V Investment Fluctuation Reserve

Opening Balance 12,074 -


Total 44,011 12,074

VI Securities Premium Account


Additions during the year 1,289,007 -

Deductions during the year (40,381) -

Total 2,185,891 937,265

VII Revenue and Other Reserve Account

Opening Balance - -

Additions during the year 16,125 -

Total 16,125 -

VIII Balance in Profit & Loss Account 987,724 837,669

Grand Total 3,729,729 2,218,412

(` IN THOUSANDS)

- 58 -

ANNUAL ACCOUNTS



SCHEDULE 3 - DEPOSITS

A I Demand Deposits

i) From Banks 2,200 1,341

ii) From others 1,330,971 1,436,920

II Saving Bank Deposits 14,813,572 12,640,095

III Term Deposits

i) From Banks 1,722,667 618,444

ii) From others 26,596,823 21,975,780

Total 44,466,233 36,672,580

B I Deposits of branches in India 44,466,233 36,672,580

II Deposits of branches outside India - -

Total 44,466,233 36,672,580

SCHEDULE 4 - BORROWINGS

I Borrowings in India

i) Reserve Bank of India 810,000 -

ii) Other Banks - -

iii) Other Institutions and Agencies 1,792,000 1,807,000

iv) Unsecured Redeemable Non-Convertible Bonds 1,217,200 1,386,800

(Subordinated debt - Tier II Capital)

v) Hybrid Debt Capital instrument issued as Debentures 390,000 390,000

II Borrowings outside India - -

Total 4,209,200 3,583,800

SCHEDULE 5 - OTHER LIABILITIES AND PROVISIONS

I Bills Payable 179,627 215,403

II Inter-office adjustments (net) 362 115

III Interest accrued 56,323 41,490

IV Others (including provisions) 133,452 111,139

V Contingent provision against standard assets 185,768 84,298

Total 555,532 452,445

SCHEDULE 6 - CASH AND BALANCE WITH RESERVE BANK OF INDIA

I Cash in hand (including Cash at ATM) 610,171 430,776

II Balance with Reserve Bank of India

a) In current accounts 1,602,159 1,717,867

b) In other deposits accounts - -

Total 2,212,330 2,148,643

(` IN THOUSANDS)

- 59 -



SCHEDULE 7 - BALANCE WITH BANKS AND MONEY AT CALL & SHORT NOTICE

I. In India

I) Balance with Banks

a) In current accounts 112,189 299,580

b) In other deposit accounts 4,333,328 4,188,437

II) Money at call and short notice

a) With Banks - -

b) With other Institutions 1,499,645 479,621

Total (I) 5,945,162 4,967,638

II Outside India

a) In current accounts - -

b) In other deposit accounts - -

c) Money at call and short notice - -

Total (II) - -

Grand Total(I+II) 5,945,162 4,967,638

SCHEDULE 8 - INVESTMENTS

I Investments in India in

i) Government securities 10,518,746 8,595,797

ii) Other approved securities - -

iii) Shares - -

iv) Debentures and bonds - 30,000

v) Subsidiaries and/or joint ventures - -

vi) Others (Certificate of deposits, money market based mutual Funds) - -

Total (I) 10,518,746 8,625,797

II Investments outside India in

i) Government securities - -

ii) Subsidiaries and/or joint ventures abroad - -

iii) Other Investments - -

Total (II) - -

Grand Total(I+II) 10,518,746 8,625,797

III Gross value of Investments 10,518,746 8,625,862

Less : Provision for Depreciation - 65

Net Value of Investments 10,518,746 8,625,797

(` IN THOUSANDS)

- 60 -



SCHEDULE 9 - ADVANCES

A i) Bills Purchased and Discounted 4,923 4,557

ii) Cash Credits, Overdrafts and Loans Repayable on Demand 18,670,928 15,522,345

iii) Term Loans 14,407,234 10,463,551

Total 33,083,085 25,990,453

B i) Secured by Tangible Assets 32,783,732 25,702,052

ii) Covered by Bank / Government Guarantees - -

iii) Unsecured 299,353 288,401

Total 33,083,085 25,990,453

C I) Advances in India

i) Priority Sector (Refer Note 8.7 of Schedule 18) 22,913,646 18,141,697

ii) Public Sector - -

iii) Banks 106 -

iv) Other 10,169,333 7,848,756

Total (I) 33,083,085 25,990,453

II) Advances outside India

i) Due from Banks - -

ii) Due from Others - -

a) Bills Purchased & Discounted - -

b) Syndicated Loans - -

c) Others - -

Total (II) - -

Grand Total (I+II) 33,083,085 25,990,453

SCHEDULE 10 - FIXED ASSETS

I. Premises

At cost as on 31st March of the preceeding year 64,524 64,524

Add : Additions during the year - -

Less : Deductions during the year - -

Total 64,524 64,524

Depreciation - -

As at 31st March of the preceeding year - -

Charge for the year - -

Total - -

Net Block I 64,524 64,524

II. Other Fixed Assets (including furniture & fixtures)

At cost as on 31st March of the preceeding year 1,308,523 1,011,061

Add : Additions during the year 225,631 310,396

Less : Deductions during the year 3,527 12,934

Total 1,530,627 1,308,523

(` IN THOUSANDS)

- 61 -



Depreciation

As at 31st March of the preceeding year 537,858 429,862

Charge for the year 153,373 117,658

Less : Reversed on sale 2,316 9,662

Total 688,915 537,858

Net Block II 841,712 770,665

Total ( I & II ) 906,236 835,189

SCHEDULE 11 - OTHER ASSETS

I Inter-office adjustments (net) - -

II Interest accrued 491,132 502,166

III Taxes paid in advance/TDS (net of provision for taxes) 14,800 14,947

IV Stationary & Stamps 2,494 7,351

V Others 124,781 119,860

Total 633,207 644,324

SCHEDULE 12 - CONTINGENT LIABILITIES

I Claims against the Bank not acknowledged as debts - -

II Liability for partly paid investments - -

III Liability on account of outstanding forward exchange - -

contracts - -

IV Guarantees given on behalf of constituents

(a) In India 321,331 373,916

(b) Outside India - -

V Acceptances, endorsements and other obligations 13,559 12,510

VI Other items for which Bank is contingently liable 35,820 34,508

Total 370,710 420,934

SCHEDULE 13 - INTEREST EARNED

I Interest/discount on advances/bills 3,306,594 2,416,786

II Income on investments 729,051 643,421

III Interest on balance with Reserve Bank of India

and inter-bank funds 545,673 402,674

IV Others 30 32

Total 4,581,348 3,462,913

SCHEDULE 14 - OTHER INCOME

I Commission, exchange and brokerage 288,410 237,148

II Profit/(Loss) on sale of investments (Net) 57,125 32,077

III Profit/(Loss) on revaluation of investments (Net) - -

(` IN THOUSANDS)

- 62 -



IV Profit/(Loss) on sale of land, building & other assets(Net) (175) (2,050)

V Profit/(Loss) on Exchange Transactions(Net) 35,800 28,082

VI Income earned by way of dividends etc. - -

VII Miscellaneous income 48,390 17,810

Total 429,550 313,067

SCHEDULE 15 - INTEREST EXPENDED

I Interest on Deposits 2,538,390 1,912,270

II Interest on Reserve Bank of India/Inter-Bank Borrowings 6,436 12,564

III Others 310,294 186,677

Total 2,855,120 2,111,511

SCHEDULE 16 - OPERATING EXPENSES

I Payments to and provisions for employees 846,420 652,833

II Rent, Taxes and Lighting 249,650 215,337

III Printing and Stationery 31,459 24,305

IV Advertisement and Publicity 3,822 7,480

V Depreciation on Bank's property 153,373 117,658

VI Directors Fees, Allowances & Expenses 2,670 1,165

VII Auditors' Fees and Expenses 4,875 1,805

VIII Law charges 16 -

IX Postage, Telegrams, Telephones etc. 25,570 21,069

X Repairs and Maintenance 52,178 24,678

XI Insurance 57,461 48,232

XII Other expenditure 205,837 207,137

Total 1,633,331 1,321,699

(` IN THOUSANDS)

- 63 -

1 CORPORATE INFORMATION

Capital Small Finance Bank Limited ('the Bank') a banking company incorporated under The Companies Act, 1956, is engaged in providing a wide range of banking and nancial services including retai l & c o m m e r c i a l b a n k i n g a n d t r e a s u r y operations. The Bank is governed by the Banking Regulation Act, 1949 and the Companies Act, 2013. The name of the Bank has been included in the Second Schedule to the Reserve Bank of India Act, 1934 vide Reserve Bank of India ('the RBI' or 'RBI') notication dated February 16, 2017. The Bank operates in India and does not have any branch outside India.

2 BASIS OF PREPARATION

The accompanying nancial statements have been prepared under the historical cost convention and on accrual basis except where otherwise stated, and in compliance with the generally accepted accounting principles in India ("Indian GAAP") and in accordance with statutory requirements prescribed under the Banking Regulation Act 1949, circulars and guidelines issued by the RBI from time to time (RBI guidelines), accounting standards referred to in Section 133 of the Companies Act, 2013 (the Act) read with Rule 7 of the Companies (Accounts) Rules, 2014 and The Companies (Accounting Standards) Amendment rules, 2016 to the extent applicable and practices prevailing within the banking industry in India. The nancial statements are presented in Indian Rupees rounded off to the nearest thousands unless otherwise stated.

3 USE OF ESTIMATES

The preparation of nancial statements in conformity with Indian GAAP requires Management to make estimates and assumptions considered in the reported amounts of assets and liabilities (including contingent liabilities) and the reported income and expenses during the year. The

Management believes that the estimates used in preparation of nancial statements are prudent and reasonable.

Actual results could differ from estimates and the differences between the actual results and the es t ima tes a re recogn ized prospectively in the year in which the results are known/materialised.

4 PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION

4.1 Fixed assets are stated at cost, net of accumulated depreciation and accumu-lated impairment if any. The cost of an asset comprises its purchase price and any cost directly attributable to bringing the asset to its working condition and location for its intended use. Sub-sequent expenditure on xed assets after its purchase is capitalized only if such expenditure results in an increase in the future benets from such asset beyond i ts previously assessed standard of performance.

4.2 Depreciable amount for assets is the cost of an asset, or other amount substituted for cost, less its estimated residual value. Depreciation on tangible xed assets has been provided on the straight-line method as per the useful life prescribed in Schedule II to the Companies Act, 2013. Leasehold improvements are amortized over the duration of the primary lease period or useful life whichever is less.

4.3 Intangible assets are amortized on a straight line basis over their estimated useful life. The amortization period is reviewed at the end of each nancial year and the amortization period is revised to reect the changed pattern, if any.

4.4 The rates of depreciation for key xed assets, which are not lower than the rates, calculated on the basis of the useful life specied in the Schedule II to the Companies Act, 2013, is as follows:

SIGNIFICANT ACCOUNTING POLICIES APPENDED TO AND FORMING PART OF THE

FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020

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SCHEDULE 17 :

ANNUAL ACCOUNTS

Asset Depreciation rate

per annum

Computers 33.33%

Mobile Phones 33.33%

Cash Sorting Machines 33.33%

Software & System 20.00%

Development Expenditure

4.5 All other Assets are depreciated on the rates, calculated on the basis of useful life specied in the Schedule II to the Companies Act, 2013, as detailed below:

Asset Depreciation rate

per annum

Ofce Equipment 6.33%

Furniture & Fixture 9.50%

Motor Car 11.88%

Two Wheeler 9.50%

Cycle 9.50%

4.6 Assets purchased/sold during the year are depreciated on a pro-rata basis.

4.7 An item of Fixed Assets is derecognized on disposal or when no future economic benets are expected from its use or disposal. The gain or loss arising on de-recognition is recognized in the Prot & Loss account.

4.8 Gains or losses arising from disposal or retirement of tangible xed assets are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized n e t , w i t h i n “ O t h e r I n c o m e ” a s Prot/(Loss) on sale of xed assets, as the case maybe, in the Prot & Loss account in the year of disposal or retirement.

5 IMPAIRMENT OF ASSETS

The carrying amount of assets is reviewed at the Balance Sheet date to determine whether there are any indications of impairment based on internal / external factors. In case of impaired assets, the impairment loss i.e. the amount by which the carrying amount of the asset exceeds its recoverable value is charged to the Prot & Loss account to the

extent the carrying amount of assets exceeds its estimated recoverable amount.

6 INVESTMENTS

Classication and valuation of the Bank's investments are carried out in accordance with the RBI guidelines which are as follows:

6.1 Categorization of Investments

The Bank classies its investment at the time of purchase into one of the following three categories:

(i) Held to Maturity (HTM) – Securities acquired with the intention to hold till maturity.

(ii) Held for Trading (HFT) – Securities acquired with the intention to trade.

(iii) Ava i lab le fo r Sa le (AFS) – Securities which do not fall within the above two categories.

Subsequent shifting amongst the categories is done in accordance with the RBI guidelines.

6.2 Classication of Investments

For the purpose of disclosure in the Balance Sheet, investments in India are classied under six groups viz., (i) Government Securities, (ii) Other Approved Securities, (iii) Shares, (iv) Debentures and Bonds, (v) Investments in Subsidiaries and/or Joint Ventures and (vi) Other Investments.

Investments outside India are classied under three groups viz., (i) Government Securities (Including local authorities), (ii) Subsidiaries and/or Joint Ventures abroad and (iii) Other Investments.

6.3 Acquisition cost

(i) Brokerage, commission, etc. pertaining to investments, paid at the time of acquisition is charged to the Prot & Loss account.

(ii) Cost of investments is computed based on the weighted average cost method.

6.4 Valuation of Investments

(i) Held to Maturity – Each security in

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this category is carried at its acquisition cost. Any premium on acquisit ion of the security is amortized over the balance period to maturity. The amortized amount is classied under Interest earned – Income on investments (Item II of Schedule 13). The book value of the security is reduced to the extent of amount amortized during the re levant account ing per iod . Diminution, other than temporary, is determined and provided for each investment individually.

(ii) Held for Trading – Securities are valued scrip-wise and depreciation / appreciation is aggregated for each classication. Net appre-ciation in each classication is ignored, while net depreciation is provided for.

(iii) Available for Sale – Securities are valued scrip-wise and depreciation / appreciation is aggregated for each classication. Net appre-ciation in each classication, is ignored, while net depreciation is provided for.

(iv) Market value of government securities (excluding treasury bills) is determined on the basis of the prices / YTM declared by the Primary Dealers Association of India (PDAI) joint ly with the Financial Benchmark India Private Limited (FBIL).

(v) Treasury bills are valued at carrying cost, which includes discount amortized over the period to maturity.

(vi) Purchase and sale transaction in securities are recorded under Se t t lement Da te method o f accounting.

(vii) Provision for non-performing investments is made in confor-mity with the RBI guidelines.

(viii) Prot in respect of investments sold from HTM category is included in the Prot on Sale of Investments and an equivalent amount (net of taxes, if any, and net of transfer to Statutory Reserves as applicable to such prots) is appropriated from the Prot & Loss account to Capital

Reserve account.

(ix) In the event, provisions created on account of depreciation in the AFS or HFT categories are found to be in excess of the required amount in any year, the excess is credited to the Prot and Loss account and an equivalent amount (net of taxes, if any, and net of transfer to Statutory Reserves as applicable to such excess provisions) is appropriated to an Investment Reserve Account (IRA). The balance in IRA account is used to meet provision on account of depreciation in AFS and HFT categories by transferring an equivalent amount to the Prot and Loss Appropriation account as and when required.

(x) Units of the scheme of Mutual Funds are valued at the lower of cost and Net asset value (NAV) p rov ided by the respec t i ve schemes of Mutual Funds.

(xi) In accordance wi th the RBI guidelines, repurchase and reverse repurchase t ransac- t ions in g o v e r n m e n t s e c u r i t i e s a n d corporate debt securities are reected as borrowing and lending transactions respectively.

Borrowing cost on repo transactions is accounted for as interest expense and revenue on reverse repo transactions is accounted for as interest income."

6.5 Broken period Interest

Broken period interest on Debt Instruments is treated as a Revenue item.

6.6 Transfer of Security between Categories

Transfer of Securities from one category to another is carried out at Acquisition cost or Book Value or Market Value, whichever is lower on the date of transfer and the depreciation, if any, on such transfer is fully provided for.

7 ADVANCES

7.1 Advances are classied as per the RBI guidelines into standard, sub-standard, doubtful and loss assets. Advances are

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stated net of specic loan loss provision.

7.2 Specic provisions for non-performing advances and oating provisions are made in conformity with the RBI guidelines. In addition, the Bank considers accelerated provisioning based on past experience, evaluation of securities and other related factors.

7.3 Provisions on Standard Assets are made @ 0.40% of the outstanding advances. Further, as per the RBI gu ide l ines , the s tandard asse t provisioning on individual housing loans sanctioned on and after June 7, 2017, is made @ 0.25%.

However, provision for banks direct advances to agriculture and SME sectors is made @ 0.25%, medium enterprises sector is made @ 0.4%, commercial real estate sector is made @ 1% and housing loans at teaser rates @ 2% in pursuance to the RBI circulars issued from time to time. Further the same is shown under the head 'Other Liabilities and Provisions'. In respect of accounts in default but standard as on the date of the balance sheet & where asset classication benet has been extended for the moratorium/ deferral period in accordance with the guidelines issued by the Reserve Bank of India, provis ion of 10 per cent of the outstanding of such accounts is/will be created in phased manner i.e. 5% for the quarter ended March 31, 2020 and remaining 5% will be created during the quarter ending June 30, 2020.

7.4 Amounts recovered during the year against bad debts written off in earlier years are credited to the Prot & Loss account.

7.5 Prov is ion no longer considered necessary in the context of the current status of the borrower as a performing asset, are written back to the Prot & Loss account to the extent such provisions were charged to the Prot & Loss account.

7.6 The Bank enters into transactions for the sale/purchase of Priority Sector Lending Certicates (PSLCs) through the RBI platform. There is no transfer of risks or loan assets. The fee received for the sa le o f PSLCs i s r eco rded as 'Miscellaneous Income'.

8 NET PROFITS

The Net Prots have been arrived at after:

8.1 P rov i s ions fo r I ncome Tax i n accordance wi th the s ta tu tory requirements

8.2 Provisions on Advances

8.3 A d j u s t m e n t s t o t h e v a l u e o f Investments

8.4 Other usual and necessary provisions

9 REVENUE RECOGNITION

Income is accounted on Accrual basis except in the following cases:

9.1 Interest on Non-Performing Assets is recognized on realization basis as per the RBI guidelines.

9.2 Interest which remains overdue for 90 days on securities not covered by Government Guarantee is recognized on realization basis as per the RBI guidelines.

9.3 Commission (other than on Deferred Payment Guarantees and Government Tr a n s a c t i o n s ) , E x c h a n g e a n d Brokerage are recognized on realization basis.

9.4 Interest on Overdue Bills is recognized on Realization Basis as per the RBI guidelines.

10 EMPLOYEE BENEFITS

10.1 Provident Fund: As per the statute, contribution towards provident fund for certain employees is made to the regulatory authorities, where the Bank has no further obligations. Such benets are classied as Dened Contribution Schemes as the Bank does not carry any further obligations, apart from the contribu-tions made on a monthly basis.

10.2 Gratuity: Every employee is entitled to a benet equivalent to 15 days' salary last drawn for each completed year of service in line with the Payment of Gratuity Act, 1972. The same is payable at the time of separation from the Company or retirement, whichever is earlier. The benets vest after ve years of continuous service.

The Gratuity scheme of the Bank is a

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dened benet scheme and the expense for the period is recognized on the basis of actuarial valuation at the Balance Sheet date. The present value of the obligation under such benet p l a n i s d e t e r m i n e d b a s e d o n independent actuarial valuation using the Projected Unit Credit Method which recognizes each period of service that gives rise to additional unit of employee benet entitlement and measures each unit separately to build up the nal obligation. Actuarial losses/ gains are recognized in the Prot and Loss Account in the year in which they arise. Payment obligations under the Group Gratuity scheme are managed through a fund main-tained by ICICI Prudential Life Insurance under separate Trust set up by the Bank.

10.3 Compensated absences: Provision for compensated absences is made on the basis of actuarial valuation as at the Balance Sheet date. The actuarial valuation is carried out using the Projected Unit Credit Method.

10.4 S h a r e - b a s e d p a y m e n t s : T h e measurement and disclosure of Employee Stock Options offered by the Bank is as per the Guidance Note on Accounting for Employee Share-based Payments issued by the Institute of Chartered Accountants of India.

The cost of equity-settled transactions is measured using the intrinsic value method and recognized, together with a corresponding increase in the 'Stock options outstanding account' in reserve. The cumulative expense r e c o g n i z e d f o r e q u i t y - s e t t l e d transactions at each reporting date until the vesting date reects the extent to which the vesting period has expired and the Bank's best estimate of the number of equity instruments that will ultimately vest. The expense or credit recognized in the statement of prot and loss for a period represents the movement in cumulative expense recognized as at the beginning and end of that period and is recognized in employee benets expense.

11 LEASE

11.1 Lease arrangements where risk and

rewards incidental to owner-ship of an asset substantially vest with the lessor are recognized as operating leases.

11.2 Lease rentals under operating lease are charged to the Prot & Loss account on straight line basis over the lease term in accordance with AS-19, Leases.

12 SEGMENT REPORTING

The disclosure re lat ing to segment information is in accordance with AS-17, Segment Reporting and as per guidelines issued by the Reserve Bank of India.

13 EARNINGS PER SHARE

Earnings per share is calculated by dividing the Net Prot or Loss for the year attributable to equity shareholders by the weighted ave rage numbe r o f equ i t y sha res outstanding during the year. Diluted earnings per equity share are computed using the weighted average number of equity shares and dilutive potential equity shares outstanding as at end of the year except when its results are anti-dilutive.

14 TAXES

Tax expenses comprise of current and deferred taxes. Current tax is measured at the amount expected to be paid to the tax authorities in accordance with the Income Tax Act, 1961. Deferred taxes reect the impact of current year timing differences between taxable income and accounting income for the year and reversal of timing differences of earlier years. Deferred tax is measured based on the tax rates and the tax laws enacted or substantively enacted at the Balance Sheet date. Deferred tax assets are recognized, in general, only to the extent that there is reasonable certainty that sufcient future taxable income will be available against which such deferred tax assets can be realized; where there is unabsorbed depreciation and/or carry forward of losses under tax laws, deferred tax assets are recognized only if there is virtual certainty supported by convincing evidence that such deferred tax asset can be realized against future taxable income.Current tax assets and liabilities and deferred tax assets and liabilities are off-set when they relate to

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income taxes levied by the same taxation authority, when the Bank has a legal right to off-set and when the Bank intends to settle on a net basis. Current tax assets and liabilities and deferred tax assets and liabilities are calculated at the revised rates u/s section 115BAA of the Income Tax Act, 1961. Accordingly, as per Section 115JB, Minimum Alternate Tax (MAT) is not applicable.

15 P R O V I S I O N S A N D C O N T I N G E N T LIABILITIES & CONTINGENT ASSETS

15.1 A provision is recognized when there is a present obligation as a result of past events and it is probable that an outow of resources embodying economic benets will be required to settle the obligation in respect of which a reliable estimate can be made. Provisions are not discounted to its present value and are determined based on best estimate required to settle the obligation at the Balance Sheet date. These are reviewed at each Balance Sheet date and adjusted to reect the current best estimates.

15.2 A disclosure of contingent liability is made when there is:

i) a possible obligation arising from a past event, the existence of which will be conrmed by occurrence or non-occurrence of one or more uncertain future events not within the control of the Bank; or

ii) a present obligation arising from a past event which is not recognized as it is not probable that an outow of resources will be required to settle the obligation or a reliable estimate of the amount of the obligation cannot be made.

15.3 When there is a possible obligation or a present obligation in respect of which

the likelihood of outow of resources is remote, no provision or disclosure is made.

15.4 Contingent assets, if any, are not recognized in the nancial statements since this may result in the recognition of income that may never be realized.

16 CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash in hand (including balance in ATM), balances with the RBI, balances with other banks in current accounts and money at call and short notice.

17 TRANSACTION INVOLVING FOREIGN EXCHANGE

All transactions in foreign currency are recognized at the exchange rate as notied by the Fo re ign Exchange Dea le rs Association of India (FEDAI).

Foreign currency monetary items are reported using the exchange rate prevailing at the Balance Sheet date.

Non-monetary items which are measured in terms of historical cost denominated in foreign currency are reported using the exchange rate as notied by Foreign Exchange Dealers Association of India (FEDAI) at the date of transaction. Non-monetary items which are measured at Fair Value or other similar value denominated in a foreign currency are translated using the exchange rate at the date when such value is determined.

Exchange differences arising on settlement of monetary items or on reporting of such monetary items at rates different from those at which they were initially recorded during the year, or reported in previous nancial statements, are recognized as income or expense in the year in which they arise

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SCHEDULE 18: NOTES ON ACCOUNTS APPENDED TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2020

1. CAPITAL

1.1. Capital to risk-weighted asset ratio ('Capital Adequacy Ratio') of the Bank, as on March 31, 2020 has been calculated by using the capital measurement approaches as detailed below:

1.1.1 Credit Risk has been measured by using Basel II Standardized Approach for credit risk, in accordance with the RBI circular no DBR. NBD. No.26/ 16.13.218/2016-17, dated October 06, 2016 on “Operating Guidelines for Small Finance Banks”.

1.1.2 Market Risk and Operation Risk has not been considered for measurement of Capital Adequacy Ratio as per the letter issued by the Reserve Bank of India vide reference number DBR.NBD.No.4502/16.13.218/2017-18 dated November 08, 2017 to all the small nance banks.

Ratio of capital to risk-weighted assets Current Year Previous Year

i) CRAR (%) 19.11% 16.40%

ii) CRAR - Tier I Capital (%) 14.00% 10.51%

iii) CRAR - Tier II Capital (%) 5.11% 5.89%

iv) Leverage Ratio 7.27% 5.56%

1.2. Movement in Capital during the year is as below: (Rs. in Thousands)

Particulars Current Year Previous Year

i) Amount of equity (Face Value) raised on 53,265 Nil private placement under preferential allotment

ii) Amount of debt raised as Upper Tier-II capital Nil Nil

iii) Amount of subordinated debt raised as Nil 614,500 Tier-II capital (Lower Tier-II capital)

1.3. Tier I Capital Infusion

During the current year, the Bank has issued and allotted 1,608,508 Equity Shares on June 25, 2019

and 3,717,966 Equity Shares on November 22, 2019 of ̀ 10/- each at a premium of ̀ 242/- (i.e. at the

total issue price of `252/-) per Equity Share aggregating to `1,342,271 thousand on a private

placement basis under preferential allotment to Financial Institutional Investors i.e. Amicus Capital Private Equity I LLP, Amicus Capital Partners India Fund I, Pi Ventures LLP and Oman India Joint Investment Fund II.

During the previous year, the Bank has not issued any equity shares.

Movement in the paid-up equity share capital of the Bank is as below:

(Rs. in Thousands)


i) Opening Balance 284807 284807

ii) Addition pursuant to Amount of equity raised on

private placement basis under preferential allotment 53265 Nil

iii) Closing Balance 338072 284807

1.4. Proposed Dividend

As per the circular issued by the Reserve Bank of India dated April 17, 2020, the banks shall not make any further dividend payouts from prots pertaining to the nancial year ended March 31, 2020 until

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ANNUAL ACCOUNTS

further instructions, with a view that banks must conserve capital in an environment of heightened uncertainty caused by COVID-19. Accordingly, no dividend has been recommended by the Board of Directors for the year ended March 31, 2020 (March 31, 2019: ̀ 0.20 per equity share).

1.5. Tier 2 Capital

During the current year, the Bank has not raised Tier 2 Capital.

During the previous year, the Bank has raised Unsecured Redeemable Non-Convertible Lower Tier II Bonds, mentioned as below:

(` in Thousands)

Series Date of Allotment Coupon (%) Tenure Amount

Series XV 15-May-18 9.25% 10 years 209,500

Series XVI 28-Feb-19 10.00% 10 years 180,000

Series XVII 31-Mar-19 10.00% 10 years 225,000

During the current year, the Unsecured Redeemable Non-Convertible Lower Tier II Bonds have matured, mentioned as below:

(` in Thousands)

Series Date of Allotment Coupon (%) Amount

Series I 17-Sep-19 11.00% 50,300

Series II 29-Sep-19 11.00% 36,000

Series III 24-Oct-19 11.00% 27,800

Series IV 27-Mar-20 10.00% 55,500

During the previous year, there has been no maturity under the Tier 2 Capital.

Maturity Prole of total debentures outstanding as on March 31, 2020:

Unsecured Redeemable Non-Convertible Lower Tier II Bonds:

(` in Thousands)

Series Amount Maturity Date

11% Tier II Bonds Series V 57100 4-Jun-21

1% Tier II Series VI 30200 18-Jun-21

11% Tier II Bonds Series VII 60400 25-Aug-22

11% Tier II Bonds Series VIII 50300 4-May-23

11% Tier II Bonds Series IX 31000 20-May-23

11% Tier II Bonds Series X 94700 24-May-24

10.50% Tier II Bonds Series XII 120000 17-Feb-26

9.75% Tier II Bonds Series XIV 159000 25-Nov-26

9.25% Tier II Bonds Series XV 209500 15-May-28

10% Tier II Bonds Series XVI 180000 28-Feb-29

10% Tier II Bonds Series XVII 225000 31-Mar-29

TOTAL 1217200

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Unsecured Redeemable Non-Convertible Upper Tier II Bonds:

(` in Thousands)

Series Amount Maturity Date

11.75% Upper Tier II Bonds Series XI 140000 31-Mar-30

11.75% Upper Tier II Bonds Series XIII 250000 30-Mar-31

Total 390000

1.6. Creation/Reversal of Investment Reserve Account

During the current year, the Bank has not transferred any amount to/from Investment Reserve Account.

During the previous year, the Bank has reversed an amount of `35 thousand from Investment

Reserve Account to Prot and Loss Appropriation Account, being the amount of depreciation on investment created, net of applicable taxes and statutory reserve requirement, during the previous year.

1.7. Creation of Investment Fluctuation Reserve

During the current year, in terms of circular number RBI/2017-18/147.DBR.No. BP.BC.102/21.04.048/2017-18 dated April 02, 2018, the Bank has appropriated the amount of

`31,937 thousand (previous year `12,074 thousand) to Investment Fluctuation Reserve. The total

amount appropriated to Investment Fluctuation Reserve as on March 31, 2020 is ̀ 44,011 thousand

(previous year ̀ 12,074 thousand).

(` in Thousands)


1) Value of Investments

(i) Gross Value of Investments

a) In India 10,518,746 8,625,862

b) Outside India Nil Nil

(ii) Provision for Investments

a) In India Nil (65)


(iii) Net Value of Investments

a) In India 10,518,746 8,625,797


2) Movement of Provision for Depreciation

held towards Investments

(i) Opening Balance 65 8

(ii) Provisions made during the year 705 61,989

(iii) Write-off/(write-back) of excess

provisions during the year

(770) (61,932)

(iv) Closing Balance Nil 65

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The Bank has not undertaken any other Repo Transaction during the previous year.

2.2 Non-SLR Investment Portfolio

i) Issuer composition of Non-SLR investments as on last date of the year

Current Year

The Bank does not hold any investment in Non-SLR category as on March 31, 2020.

Previous Year

(` in Thousands)

ii) Non performing Non-SLR investments

The Bank does not have any non-performing Non-SLR investment during the Current Year and

Previous Year.

2.3 Shifting of Investments

During the Current Year

The Bank has not shifted any investment during the current year.

During the Previous Year

At the beginning of the previous year, the Bank, after approval of the Board of Directors vide board resolution number 34 passed in the meeting held on May 9, 2018, has transferred government securities within the categories as stated below

(` in Thousands)

Sr. No.

Issuer

Amount

Extent of Private

Placement

Extent of ‘Below Investment

Grade’ Securities

Extent of ‘Unrated’ Securities

Extent of ‘Unlisted’ Securities

(1) (2) (3) (4) (5) (6) (7)

(i) PSUs 30,000 Nil Nil Nil Nil

(ii) FIs Nil Nil Nil Nil Nil

(iii) Banks Nil Nil Nil Nil Nil

(iv) Private Corporates

Nil Nil Nil Nil Nil

(v) Subsidiaries/ Joint Ventures Nil Nil Nil Nil Nil

(vi) Others Nil Nil Nil Nil Nil

(vii) Provision held towards depreciation

Nil Nil Nil Nil Nil

Total 30,000 Nil Nil Nil Nil

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Category Book Value Market Value

From To

Held to Maturity Available for Sale 508,020 521,277

Available for Sale Held to Maturity 1,287,765 1,283,050

Total 1,795,785 1,804,327

2.4 Derivatives

The Bank has not undertaken any derivative business during the current year and the previous year.

2.5 Security Receipts

The Bank does not hold any investment in Security Receipts during the current year and the previous year.

3. Asset Quality

3.1 Impact on account of COVID-19 on Advances

The pandemic due to COVID-19 continues to spread across the globe. This has deaccelerated economic activity and has increased volatility in the nancial markets. Many organizations, including the Bank, have introduced various containment measures since it was declared as a pandemic by the World Health Organization (WHO) on March 11, 2020.

The Government of India, on March 24, 2020, introduced a strict 21-day lockdown which subsequently got increased to 19 days more to contain the community spread of the catastrophic virus. The extent to which the COVID-19 pandemic will affect the Bank's earning capacity will depend upon future developments, which are highly uncertain.

In accordance with the RBI guidelines relating to COVID-19 Regulatory Package dated March 27, 2020 and April 17, 2020, the Bank has granted a moratorium of three months on the payment of all installments and/or interest as applicable falling due between March 1, 2020 and May 31, 2020 to the eligible borrowers classied as standard, even if overdue, as on February 29, 2020. For all such accounts where the moratorium is granted, the asset classication will remain standstill during the moratorium period. In respect of accounts in default but standard as on the date of the balance sheet and where asset classication benet has been extended for the moratorium/deferral period in accordance with the guidelines issued by the Reserve Bank of India, provision of 10 per cent of the outstanding of such accounts is/will be created in phased manner i.e. 5% for the quarter ended March 31, 2020 and remaining 5% will be created during the quarter ending June 30, 2020.

The Bank has created general provision of ̀ 7.70 Crores for the quarter ended March 31, 2020 in respect to impact due to COVID-19 which is in excess of the provision required as per the RBI guidelines. The details are as under:

(Rs. In Crores)

1 Respective amount in SMA/overdue categories, where the moratorium/deferment

was extended, in terms of paragraph 2 and 3 of the circular

513.68

2 Respective amount where asset classification benefits is extended 64.10

3 Provisions made during the quarter ended March 31, 2020 in terms of paragraph

5 of the circular

7.70

4 Provisions adjusted during the respective accounting periods against slippages in

terms of paragraph 6 of the circular.

-

5 Residual provision as on March 31, 2020 in terms of paragraph 6 of the circular. 7.70

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3.2 Non-Performing Asset

(Rs. in Thousands)

3.3 Technical Write-Offs

There were nil technical write-offs during the current year and previous year.

3.4 Restructuring

The Bank has not restructured any account during the current year and previous year.

3.5 Disclosure resolution of Stressed Assets

The Reserve Bank of India has issued guidelines on Prudential Framework on Resolution of Stressed Assets, dated June 07, 2019. The Bank has not restructured any account under the framework during the current year.

3.6 Sale of Financial Asset under Securitization/Asset Reconstruction

The Bank has not sold any nancial asset during the year to Securitization/ Reconstruction Company for Asset Reconstruction during the current year and previous year.

3.7 Sale/Purchase of Non-performing nancial assets

The Bank has not purchased/sold any Non-performing nancial assets from/to other banks during the Current Year and Previous Year.

3.8 Provision on Standard Asset

(Rs. in Thousands)


(i) Net NPAs to Net Advances (%) 1.25% 0.93%

(ii) Movement of NPAs (Gross)

Opening balance 339,556 211,286


Reductions during the year 176,387 150,177

Closing balance 585,069 339,556

(iii) Movement of NPAs (Net)



Reductions during the year 139,777 127,356


(iv) Movement of provisions for NPAs

(excluding provisions on standard assets)


Provisions made during the year 111,830 63,201

Write-off/ write-back of excess provisions 36,610 22,821


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Provisions towards Standard Assets 101,470* 25,757

The cumulative provision towards standard assets held by the Bank as at the year-end amounts to `185,768 thousand (previous year ̀ 84,298 thousand).

*General provision against standard assets includes provision of Rupees 7.70 crores created in accordance with RBI Circular 'COVID19 Regulatory Package - Asset Classication and Provisioning' and 'COVID-19 – Regulatory Package'.

1. Business Ratios

*Working funds has been reckoned as average of total assets as reported to Reserve Bank of India in Form X under Section 27 of the Banking Regulation Act, 1949, during the 12 months of the nancial year.

**Operating prot is the net prot for the year before provisions and contingencies.

@ Return on Assets is calculated with reference to monthly average working funds (Working funds taken as total of assets excluding accumulated losses, if any).

# For the purpose of computation of business per employee business is calculated by adding deposits and advances excluding inter-bank deposits.

^ Productivity ratios are based on average number of employees.


(i) Interest Income as a percentage to Working Funds*

(ii) Non-interest income as a percentage to Working Funds*

(iii) Operating Profit** as a percentage to Working Funds*

(iv) Return on Assets@

(v) Business (Deposits plus advances) # per employee^ (` in ‘000)

(vi) Profit per employee (Operating Profit)^(` in ‘000)

9.24%

0.87%

1.05%

0.51%

48,424

333

9.03%

0.82%

0.89%

0.51%

47,219

260

- 77 -

5 Asset Liability Management

Maturity Pattern of certain items of Assets & Liabilities as on March 31, 2020

(` in Thousands)

Classication of Assets and Liabilities under the maturity buckets is based on the same estimates and assumptions as used by the Bank for compiling the return submitted to the Reserve Bank of India.

In accordance with the RBI guidelines relating to COVID-19 Regulatory Package dated March 27, 2020 and April 17, 2020, the Bank has granted a moratorium of three months on the payment of all installments and/or interest as applicable falling due between March 1, 2020 and May 31, 2020 to the eligible borrowers classied as standard, even if overdue, as on February 29, 2020 and has incorporated the effect of moratorium in the respective maturity buckets.

6 Exposures

6.1 Exposure to Real Estate Sector (` in Thousands)

Next Day 2-7

Days

8-14

days

15 to 30

Days

31 days

and

Upto

2

Months

over 2

months

and upto

3

months

over 3

months

and upto

6

months

Over 6

months

and upto

1 year

Over 1

year and

upto 3

years

Over 3

years

and upto

5 years

Above 5

Years

Total

CY

Loans &

Advances

PY

- - - - - 5121253 1234731 2532910 19245184 3532990 1416017 33083085

4341868 41513 63588 173855 311060 305044 904728 1800008 14987856 2214870 846063 25990453

CY

Investment

PY

2632901 37518 21157 71915 183558 246677 356898 769661 2821629 72814 3304018 10518746

324561 118117 269044 98941 249276 90889 654964 563739 3302188 62702 2891376 8625797

CY

Deposits

PY

1713062 215693 116795 413438 1055271 1389073 2044791 4199653 15387893 244318 17706246 44466233

1488592 110972 152354 565045 1407624 503087 1266721 2565056 13343874 216646 15052609 36672580

CY

Borrowing

PY

- - 110000 - 26000 26000 678000 566000 1343700 176000 1283500 4209200

- - - - 16000 16000 234300 379300 1418300 141700 1378200 3583800

CY

Foreign

Currency

Assets PY

7276 - - - - - - - - - - 7276

- - - - - - - - - - - -


a) Direct exposure

(i) Residential Mortgages –

Lending fully secured by mortgages on residential property that is or will be

occupied by the borrower or that is rented;

¬ Individual Housing Loans eligible for inclusion in Priority Sector advances

¬ Others

(ii) Commercial Real Estate –

Lending secured by mortgages on commercial real estate (office buildings,

retail space, multi-purpose commercial premises, multi-family residential

buildings, multi-tenanted commercial premises, industrial or warehouse

space, hotels, land acquisition, development and construction, etc.).

Exposure would also include non-fund based (NFB) limits;

(iii) Investments in Mortgage Backed Securities (MBS) and other securitized

exposures

a. Residential

b. Commercial Real Estate

b) Indirect Exposure

Fund based and non-fund based exposures on National Housing Bank (NHB)

and Housing Finance Companies (HFCs).

1,891,007

2,564,978

1,940,899

Nil

Nil

131,225

1,079,585

1,793,403

1,295,755

Nil

Nil

146,640

Total Exposure to Real Estate Sector 6,528,109 4,315,383

- 78 -

6.2 Exposure to Capital Market (` in Thousands)

6.3. Risk Category Wise Country Exposure

The Bank is operating in the state of Punjab, Union Territory of Chandigarh, Haryana, Rajasthan and Delhi. Hence, the Bank does not have country risk exposure as on March 31, 2020 and March 31, 2019.

6.4. Details of Single Borrower Limit (SBL), Group Borrower Limit (GBL) exceeded by the Bank

The Bank has not exceeded the prudential exposure limits for Single Borrower Limit (SBL) and Group Borrower Limit (GBL) during the Current Year and Previous Year as per the directives of RBI.

6.5. Unsecured Advances against Intangible Assets

The Bank has not extended any advance against intangible securities such as charge over the rights, licenses, authority etc. during the current year and previous year.

6.6. Details of factoring exposure

The factoring exposure of the Bank as at March 31, 2020 is NIL (previous year - NIL).


(i) Direct investments in equity shares, convertible bonds,

convertible debentures and units of equity-oriented mutual

funds the corpus of which is not exclusively invested in

corporate debt;

(ii) Advances against shares/bonds/debentures or other securities

or on clean basis to individuals for investment in shares

(including IPOs/ESOPs), convertible bonds, convertible

debentures and units of equity oriented mutual funds;

(iii) Advances for any other purpose where shares or convertible

bonds or convertible debentures or units of equity oriented

mutual funds are taken as primary security.

(iv) Advances for any other purpose to the extent secured by the

collateral security of shares or convertible bonds or convertible

debentures or units of equity oriented mutual funds i.e. where

the primary security other than shares/convertible

bonds/convertible debentures/units of equity oriented mutual

funds does not fully cover the advances;

(v) Secured and unsecured advances to stockbrokers and

guarantees issued on behalf of stockbrokers and market

makers;

(vi) Loans sanctioned to corporates against the security of

shares/bonds/debentures or other securities or on clean basis

for meeting promoter’s contribution to the equity of new

companies in anticipation of raising resources;

(vii) Bridge loans to companies against expected equity

flows/issues;

(viii) Underwriting commitments taken up by the banks in respect of

primary issue of shares or convertible bonds or convertible

debentures or units of equity oriented mutual funds;

(ix) Financing to stockbrokers for margin trading;

(x) All exposures to venture capital funds (both registered and

unregistered)

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

Total Exposure to Capital Market - -

- 79 -

11. Staff Retirement Benets

Reconciliation of opening and closing balance of the present value of the dened benet obligation for the Gratuity Benet of the Bank is as below:

(` in Thousands)

Particulars Current

Year Previous Year

Defined benefit obligation liability

Opening Obligations 40,533 32,483

Service Cost 8,771 6,712

Interest Cost 3,113 2,547

Actuarial (Gain)/Loss 3,117 (193)

Liabilities extinguished on settlement - -

Benefits Paid (2,424) (1,016)

Obligations at last date of the year 53,110 40,533

Plan Assets at fair value

Opening Plan Assets, at fair value 40,736 32,734

Expected return on plan assets 2,994 2,619

Actuarial Gain/(Loss) 1,111 4

Assets distributed on settlement

Contributions 11,858 6,395

Benefits Paid (2,424) (1,016)

Plan Assets at fair value at last date of the year

Fair Value of Plan Assets at the end of the year 54,275 40,736

Present Value of the defined benefit obligation at the end of the year 53,110 40,533

Asset/(Liability) at last date of the year 1,165 203

Experience adjustments on Plan Liabilities (2,480) 1,103

Experience adjustments on Plan Assets 1,111 (197)

Cost for the year

Service Cost 8,771 6,712

Interest Cost 3,113 2,547

Expected Return on Plan Assets (2,994) (2,619)

Actuarial (Gain)/Loss 2,006 (197)

Net Cost 10,896 6,443

Investment details of Plan Assets

Plan assets are invested in insurer managed funds.

Assumptions

Interest Rate 6.87% 7.68%

Salary escalation rate 5.25% 6.00%

Estimated rate of return on plan assets 7.25% 7.75%

- 84 -

12 Segment Reporting

Segment details in compliance with AS-17 and pursuant to the Reserve Bank of India guidelines, are as

under:

(` in Thousands)

Note:

a) The Bank is operating in Domestic Segment so there is only one Geographic Segment.

b) Inter Segment transactions are based on transfer pricing as determined by the Management consent

15. Related Party Disclosure

Related parties as per Accounting Standard 18

· Key Management Personnel:

1) Mr. Sarvjit Singh Samra – Managing Director

2) Mr. Munish Jain – Chief Operating Ofcer & Chief Financial Ofcer

3) Mr. Amit Sharma – Company Secretary (with effect from May 17, 2019)

4) Mr. Sahil Vijay – Company Secretary (Resigned on May 17, 2019)

Business

Segments Treasury

Corporate /

Wholesale

Banking

Retail

Banking

Other Banking

Operations Total

Particulars Current

Year

Previous

Year

Current

Year

Previous

Year

Current

Year

Previous

Year

Current

Year

Previous

Year

Current

Year

Previous

Year

Revenue 1331849 1078172 386187 256771 3178101 2345058 114761 95979 5010898 3775980

Result 269296 206040 4499 24812 465430 394819 102261 82993 841486 708664

Unallocated

Expenses 495664 439419

Operating

Profit 345822 269245

Income

Taxes 92001 75104

Extra-

ordinary

Profit/Loss

- - - - - - - - - -

Net Profit 253821 194141

Other Information :

Segment

Assets 16848301 13801371 3796551 2912082 32337702 26179043 15681 14556 52998235 42907052

Unallocated

Assets 300531 304992

Total Assets 53298766 43212044

Segment

Liabilities 813448 - 3293954 2634330 43415093 36207373 - - 47522495 38841703

Unallocated

Liabilities 1708470 1867122

Total

Liabilities 49230965 40708825

- 86 -

· Relatives of Key Management Personnel:

Mr. Sarvjit Singh Samra: Mr. Amarjit Singh Samra, Mr. Amardeep Samra, Mrs. Surinder Kaur Samra, Mrs. Navneet Samra, Mrs. Amarpreet Kaur Hayer, Mr. Shahbaz Singh Samra, Mr. Sangram Singh Samra and Sarvjit Singh Samra HUF.

Mr. Munish Jain: Mr. Kimti Lal Jain, Mr. Vishal Jain, Mrs. Usha Jain, Mrs. Ruchi Jain, Mrs. Ritu Jain, Mr. Aagam Jain, Mr. Gaurish Jain and Munish Jain HUF.

Mr. Amit Sharma: Mr. Mangal Chand Sharma, Mrs. Bimla Sharma, Mrs. Gitika Sharma, Mr. Kunal Sharma, Miss Amayra Sharma, Mrs. Poonam Sharma, Mrs. Seema Sharma, Mr. Ajay Sharma and Mrs. Sheetal Sharma.

Mr. Sahil Vijay: Mr. Vijay Kumar, Mrs. Kusum Talwar, Mrs. Deepika Sharma and Mr. Aviral Vijay.

· Associates/ Joint Ventures/ Others:

Capital Foundation Trust

· Enterprises where KMP/relatives of KMP have signicant control/inuence

Midland Micron Limited

a) The balances payable to/receivable from the related parties of the Bank as on March 31, 2020

are given below:

(Rs. in Thousands)

Items/ Related Party

Parent Subsidiary Associates/

Joint Ventures/ Others

Key Management

Personnel

Relatives of Key Management

Personnel Total

CY Borrowings PY

- - - 1,000 12,700 13,700

- - - 1,400 10,700 12,100

CY Deposits PY

- - 1,878 5,548 30,310 37,736

- - 500 4,070 41,342 45,912

CY Placement of Deposits PY

- - - - - -

- - - - - -

CY Advances PY

- - - 91 - 91

3,206 2 3,208

CY Investments PY

- - - - - -

- - - - - -

CY Non funded commitments PY

- - - - - -

- - - - - -

CY Leasing / HP arrangements availed PY

- - - - - -

- - - - - -

CY Leasing / HP arrangements provided PY

- - - - - -

- - - - - -

- 87 -

b) The maximum balances payable to/receivable from the related parties of the Bank for the year ended March 31, 2020 are given below:

(Rs. in Thousands)

Items/ Related

Party Parent Subsidiary

Associates/

Joint

Ventures/

Others

Key

Management

Personnel

Relatives of

Key

Management

Personnel

Total

CY

Borrowings

PY

- - - 1,500 15,100 16,600

- - - 1,400 10,700 12,100

CY

Deposits

PY

- - 4,558 65,092 123,129 192,779

- - 500 88,502 101,914 190,916

CY

Placement of

Deposits

PY

- - - - - -

- - - - - -

CY

Advances

PY

- - - 4,346 113 4,459

- - - 4,025 2 4,027

CY

Investments

PY

- - - - - -

- - - - - -

CY

Non funded

commitments

PY

- - - - - -

- - - - - -

CY

Leasing / HP

arrangements

availed

PY

- - - - - -

- - - - - -

CY

Leasing / HP

arrangements

provided

PY

- - - - - -

- - - - - -

- 88 -

c) The details of transactions of the Bank with its related parties during the year ended March 31, 2020 are given below:

(Rs. in Thousands)

For a person being a KMP for the current year or part thereof, the consideration paid during the complete nancial year has been disclosed. In accordance with paragraph 5 of AS-18, the Bank has not disclosed certain transactions with entities related to the relatives of KMPs as they are in the nature of banker-customer relationship.

Items/ Related Party

Parent Subsidiary

Associates/ Joint

Ventures/ Others

Key Management

Personnel

Relatives of Key

Management Personnel

Total

CY

Purchase of

fixed assets

PY

- - - - - -

- - - - - -

CY

Sale of fixed

assets

PY

- - - - - -

- - - - - -

CY

Interest paid

PY

- - 56 774 3,581 4,412

- - - 824 3,034 3,858

CY

Interest

received

PY

- - - 64 1 65

- - - 194 0 194

CY

Rendering of

Services

PY

- - - - - -

- - - - - -

CY

(Lease Rent)

CY

(Salary)

Receiving of

Services PY

(Lease Rent)

PY

(Salary)

- - - 4,477 15,752 20,229

- - - 25,672 1,274 26,946

- - - 4,228 16,068 20,296

- - - 16,106 - 16,106

CY

Management

Contracts

PY

- - - - - -

- - - - - -

CY

CSR Expense

PY

- - 5,250 - - -

- - 500 - - -

- 89 -

16 Leases

Operating Leases

The Bank has commitments under long term non-cancellable operating leases primarily for premises. The terms of renewal and escalation clauses are those normally prevalent in the agreements of similar nature. Following is a summary of future minimum lease rental commitments for such non-cancellable operating leases.

(Rs. in Thousands)


Not later than one year 15,486 8,303

Later than One year and not later than ve years 24,864 24,522

Later than ve years 29,780 33,737

Total Minimum lease rental commitments 70,130 66,562

Total lease rental expenditure under cancellable and non-cancellable operating leases debited to Prot &

Loss Account in the current year is ̀ 169,400 thousand (Previous Year ̀ 141,998 thousand)

Finance Lease

The Bank has not taken any asset under nance lease.

17 Earnings Per Share


Net prot after tax available for equity shares (` ’000) 253,821 194,141

Weighted average number of equity shares 31,046,437 28,480,743

Weighted average number of equity shares for diluted earnings 31,116,679 28,480,743

Basic Earnings per share (`) 8.18 6.82

Diluted Earnings per share (`) 8.16 6.82

Face Value per share (`) 10 10

18 Deferred Tax Asset

Other Assets include deferred tax asset of an amount equal to ̀ 39,482 thousand (Previous Year ̀ 18,529

thousand) as detailed below:

(Rs. in Thousands)


Deferred Tax Liabilities 19,318 23,733

Depreciation on Fixed Assets 16,436 20,122

Special Reserve under section 36(i) (viii) 2,882 3,611

Deferred Tax Assets 58,800 42,262

Loan Loss Provisions 46,754 29,457

Others 12,046 12,805

Deferred Tax Liabilities/(Assets) (Net) (39,482) (18,529)

19 Provision Coverage Ratio


Ratio of Provisioning to Gross Non Performing Assets 29.50% 28.67%

- 90 -

- 91 -

20 Disclosure of Complaints

a) Customer Complaints pertaining to Retail Payment Channels (Automated Teller Machine (ATM)/Point of Sale (POS) Transactions/Ecommerce Transactions, BBPS, IMPS, etc.)


(a) No. of Complaints pending at the beginning of the year 15 1

(b) No. of Complaints received during the year 630 544

(c) No. of Complaints redressed during the year 641 530

(d) No. of Complaints pending at the end of the year 4 15

Out of the above complaints, 600 complaints (542 previous year) are related to acquiring banks during the current year ending March 31, 2020.

b) Customer Complaints other than above:


(a) No. of Complaints pending at the beginning of the year 6 Nil

(b) No. of Complaints received during the year 159 63

(c.) No. of Complaints redressed during the year 164 57

(d) No. of Complaints pending at the end of the year 1 6

c) Awards Passed by the Banking Ombudsman


(a) No of Unimplemented Awards at the beginning of the year Nil Nil

(b) Nil Nil

(c.) No. of Awards implemented during the year Nil Nil

(d) No. of Unimplemented Awards at the end of the year Nil Nil

21 Drawdown from Reserves

(Rs. in Thousands)


Investment Reserve Account Nil 35

Securities Premium Account 40,381* Nil

*The drawdown from the Securities Premium is against the share issue expenses incurred on the equity capital raised during the year.

22 Transfer to Depositor Education and Awareness Fund (DEAF)

The Bank has transferred `8,451 thousand (Previous Year `8,052 thousand) to the Depositor Education

and Awareness Fund (DEAF) during the year ended March 31, 2020 as per the details below:

(Rs. in Thousands)


Opening balance of amount transferred to DEAF 25,849 19,710

Add: Amount transferred to DEAF during the year 8,451 8,052

Less: Amounts reimbursed by DEAF towards claims 275 1,913

Closing balance of amounts transferred to DEAF 34,025 25,849

No. of Awards passed by the Banking Ombudsmen during the year

23 Movement in Floating provisions

The Bank has not created or utilized any oating provisions during the year ended March 31, 2020 and March 31, 2019. The oating provisions were nil as on March 31, 2020 and March 31, 2019.

24 Securitization transactions

The Bank has not done any securitization transactions during the year ended March 31, 2020 and March 31, 2019.

25 Letter of comfort

The Bank has not issued any letter of comfort during the year ended March 31, 2020 and March 31, 2019.

26 Intra group exposure

The Bank has no intra group exposure during the year ended March 31, 2020 and March 31, 2019.

27 Unhedged Foreign currency exposure

The Bank does not have any unhedged foreign currency exposure as on March 31, 2020 and March 31, 2019.

28 Dues to Micro, Small and Medium Enterprises

On the basis of information and records available with the Management and conrmation sought by the Management from suppliers on their registration with the specied authority under MSMED, there have been no reported cases of delay in payments to Micro, Small and Medium Enterprises or of interest payments due to delay in such payments.

29 Unamortized Pension and Gratuity Liabilities

The Bank does not have any unamortized liability against pension and gratuity during the current year and previous year.

30 Remuneration

Qualitative Information with reference to Whole Time Directors / Managing Director & Chief Executive Ofcer/ Other Risk Takers

a. Nomination and Remuneration Committee

The Bank has constituted Nomination and Remuneration Committee (NRC) for overseeing and governing the compensation polices of the Bank. The committee oversees the framing, review and implementation of compensation policy of the Bank on behalf of the Board for Managing Director & Chief Executive Ofcer, Whole Time Directors & Other Risk Takers.

The Board of Directors in the meeting held on May 17, 2019 reconstituted the Nomination and Remuneration Committee. The Committee has four members including two members from Risk Management Committee of the Board. The majority of the members of the committee are independent Non-Executive Directors consisting of the following Members:

• Mr. Rakesh Soni, Chairman

• Mr. Sham Singh Bains, Member

• Mr. Gurdeep Singh, Member

• Mr. Gurpreet Singh Chug, Member

- 92 -

b. Compensation Policy of the Bank

• Philosophy and Key Objectives

The Compensation Policy (“the Policy”) of the Bank aims at the Bank’s philosophy to recruit, motivate, reward and retain employees who believe in, and live by, our culture and values. The Bank endeavors to encourage entrepreneurship by creating a working environment that motivates high performance so that all employees can positively contribute to the strategy, vision, goals and values of the Bank. The key objectives of the Policy are:

• To support the organization’s strategy by helping to build a competitive, high performance and innovative company with an entrepreneurial culture that attracts, retains, motivates and rewards high-performing employees;

• To promote the achievement of strategic objectives within the company’s risk appetite;

• To promote / support positive outcomes across the economic and social context in which the company operates and

• To promote an ethical culture and responsible corporate citizenship.

• To ensure that the remuneration of “MD & CEO”, “Whole Time Directors” & Other Risk Takers is fair and reasonable in the context of overall Bank’s remuneration.

• Adherence to principles of good corporate governance, as depicted in “best practice” and regulatory frameworks

• Make a clear distinction between levels of accountability and pay package.

• Structure

The Policy denes the structure of the compensation into guaranteed (xed) remuneration and variable remuneration.

• The guaranteed remuneration is the base element of the remuneration that reects the employee’s role or position in the Bank and is payable for doing the expected job, including but not limited to basic salary, statutory bonus, allowances, perquisites, prot in lieu of salary and any other component paid, measured on the cost to company basis. Guaranteed remuneration is paid on monthly basis and is normally benchmarked against the nancial services market and is aligned to the expected operational performance.

• The variable remuneration is the reward element of the remuneration, focused to create a performance culture in the Bank, is payable as a reward to individuals or teams for achieving strong results in terms of pre-determined goals. The variable remuneration is paid in 2 forms:

• Short Term Variable Remuneration payable on not greater than yearly frequency and will be paid on the basis of performance based scorecard or individual employee rating, where the performance targets are set in terms of threshold, target and outperformance levels.

• Long Term Variable Remuneration only in the form of ESOPs payable on more than annual frequency on the basis of longevity and long-term performance of the employee.

• Appropriate Mix

The endeavor of the Policy is to ensure that there is a proper balance between the xed pay and variable pay. The variable pay is considered to be substantial if the variable pay as a percentage to the xed pay exceeds the ceiling as enumerated below:

Sr. Level Variable Pay as percentage No. to Fixed Pay

1 Employees other than Risk Takers 35.00%

2 Risk Takers Other than KMP and Chief Operating Ofcer 37.50%

3 KMP and Chief Operating Ofcer, not being MD & CEO /WTD 40.00%

4 “MD & CEO” and “WTDs” 47.50%

The ESOPs are excluded from the component of variable pay for the calculation of the above ceiling.

- 93 -

• Special Adjustments for the salary payable to Managing Director & CEO and Whole Time Directors

• The Short Term Variable Pay for Managing Director & CEO and Whole Time Directors for the year should not exceed 50% of the xed pay. Within the said range and as per the above ceiling, the NRC decides the short term variable pay %age for the year keeping in the view the various factors including but not limited to present and prospective capital position, present and budgeted Prot After Tax (PAT) numbers, market dynamics and risk position of the Bank. Short-term Variable Remuneration, if not substantial, is paid on yearly basis. Short-term Variable pay is paid in the form of cash only.

• Long term variable remuneration of the MD & CEO/WTD are determined or paid on the basis of ESOP Policy. As per the extant provisions of the Companies Act 2013, MD & CEO or WTD’s from the promoter group are not eligible for the ESOPs.

• On the basis of above, the variable pay is further linked with the performance of the Bank during the year and accordingly the performance measurement is done basis various key performance indicators including:

• Protability Achievement

• Business Growth Achievement (Advances and Deposits)

• Credit Risk (SMA 2 position)

• Market Risk (LCR, Duration gap Analysis)

• Solvency Risk (Leverage Ratio, Capital Adequacy Ratio)

• Where the Variable Pay constitutes substantial portion of the xed pay, then 40% of the variable pay is deferred over a period of 3 years. Compensation payable under the deferral arrangement rests on pro rata basis. Further, in the event of negative contributions of the Bank (i.e CRAR < 15% and/or negative PAT), the deferred compensation is subject to the malus arrangement. A malus arrangement permits the Bank to prevent vesting of upto 40% of the amount of the deferred remuneration as decided by the NRC. It is hereby claried that the Malus arrangement will not be reverse vesting after it has already occurred.

• Special Adjustments for the salary payable to KMPs and Other Risk Takers

• Short Term Variable Remuneration, if not substantial, as per the ceiling detailed above, is payable on half yearly or yearly basis. Where the short term variable pay constitutes a substantial portion of the xed pay, then 40% of the variable pay is deferred over a period of 3 years. Compensation payable under the deferral arrangement will rest on pro rata basis. Short term variable pay will be paid out in the form of cash only.

• Long Term Variable Remuneration is determined and payable on the basis of ESOP Policy of the Bank. As per the extant provisions of the Companies Act, 2013, KMP and other Risk Takers not being MD & CEO/WTD from the promoter group are not eligible for ESOPs.

• In the event of negative contributions of the Bank (i.e CRAR < 15% and/or negative PAT), the deferred compensation is subject to the Malus arrangement. A Malus arrangement permits the Bank to prevent vesting of upto 40% of the amount of the deferred remuneration as decided by the NRC. It is hereby claried that the Malus arrangement does not reverse vesting after it has already occurred.

• Guaranteed Bonus

The Bank does not allow any guaranteed bonus except bonus payable under the Payment of Bonus Act. Further, the Joining/Signing bonus is permissible in the context of hiring of new staff in the form of ESOPs only and be limited to the rst year. Further, the Bank will not grant severance pay other than accrued benets (gratuity, retiral benets, etc.) except in case where it is mandatory by any statute.

• Hedging

The Bank does not provide any facility or funds or permit employees to insure or hedge their compensation structure to offset the risk alignment effects embedded in their compensation arrangement.

- 94 -

Quantitative Information with reference to Whole Time Directors/Managing Director & Chief Executive Ofcer/Other Risk Takers

PARTICULARS CURRENT YEAR PREVIOUS YEAR

A. Number of meetings held by the

Remuneration Committee during the

financial year and remuneration paid

to its members.

Number of Meetings: 5

No remuneration is being paid to

members except the sitting fees.

Number of Meetings: 6

No remuneration is being

paid to members except

the sitting fees.

B(i) Number of employees having

received a variable remuneration

award during the financial year.

8 NIL

B(ii) Number and total amount of

sign-on awards made during the

financial year.

Nil NIL

B(iii) Details of guaranteed bonus, if

any, paid as joining / sign on bonus Nil NIL

B(iv) Details of severance pay, in

addition to accrued benefits, if any. Nil NIL

C(i) Total amount of outstanding

deferred remuneration, split into

cash, shares and share-linked

instruments and other forms.

Nil NIL

C(ii) Total amount of deferred

remuneration paid out in the financial

year.

Nil NIL

D Breakdown of amount of

remuneration awards for the financial

year to show fixed and variable,

deferred and non-deferred.

1. Short Term Variable

Remuneration

Fixed Pay- `91.95 Lacs

Variable Pay- `15.11 Lacs

2. Long Term Variable

Remuneration-

No. ESOPs granted- 101,183

Not Applicable

E(i) Total amount of outstanding

deferred remuneration and retained

remuneration exposed to ex post

explicit and / or implicit adjustments.

Nil Nil

E(ii) Total amount of reductions

during the financial year due to ex-

post explicit adjustments.

Nil Nil

E(iii) Total amount of reductions

during the financial year due to ex-

post implicit adjustments.

Nil Nil

- 95 -

31 Disclosure on remuneration to Non-Executive Directors

Remuneration by way of sitting fees to the Non-Executive Directors for attending meetings of the Board

and its committees during the year ended March 31, 2020 amounted to ̀ 2,670 thousand (Previous Year

`1,165 thousand).

Further, during the current year, the Bank has paid the remuneration amounting to `675 thousand

(Previous Year: Nil) in the form of prot based commission to the Non-Executive Directors other than the Chairperson.

32 Credit Default Swaps

The Bank has not entered into any Credit Default Swaps (CDS) during the year ended March 31, 2020 and March 31, 2019.

33 Corporate Social Responsibility

(Rs. in Thousands)


Total amount to be spent 5,245 4,763

Amount spent 5,250 1,304

Amount unspent Nil 3,459

The Bank has formulated a trust in the name of Capital Foundation. The CSR expenses are taken care by

the Capital Foundation. The above expenditure of `5,250 thousand (previous year `500 thousand) has

been contributed to the Capital Foundation Trust during the year.

34 Description of Contingent Liabilities

.

35 Investor Education and Protection Fund

There has been no delay in transferring amounts required to be transferred to the Investor Education and Protection Fund by the Bank.

36 Other Expenditure

Other expenditure includes amount paid for security & service charges amounting to `89,774 thousand

(Previous Year ̀ 92,348 thousand) exceeding 1% of the total income of the Bank.

37 Payment to Auditors(Rs. in Thousands)


Audit Fees 3,400 1,400

Out of Pocket Expenses 1,475 405

Particulars Description

Guarantees given on behalf of constituents in India

As a part of its commercial banking activities, the Bank issues bank guarantees on behalf of its customers.

Acceptances, endorsements and other obligations.

Includes Letters of credit issued on behalf of the customers that enhances the credit standing of the Bank’s customers.

Other items for which Bank is contingently liable.

Includes capital commitments and amount transferred to the RBI under the Depositor Education and Awareness Fund (DEAF).

- 96 -

38 Liquidity Coverage Ratio

Liquidity Coverage Ratio (LCR) is a measure to ensure that a bank has an adequate stock of unencumbered High Quality Liquid Assets (HQLA) to survive in a signicant liquidity stress lasting for a period of 30 days. LCR is dened as a ratio of HQLA to the total net cash outows estimated for the next 30 calendar days.

As per the RBI directions, the Banks are prescribed to maintain minimum LCR as per the following time frame:

Particulars By Sept 30, 2020 By March 31, 2021 April 1, 2021 onwards

Minimum LCR 80% 90% 100%

- 97 -

The table below sets out the average LCR of the Bank for all the four quarters of nancial year 2019-20

The Bank during the quarter ended March 31, 2020 maintained average HQLA of `1040.39 crores against the average net cash outows of ̀ 290.96 crores. The entire HQLA was Level 1 HQLA. The average LCR of the Bank for the quarter ended March 31, 2020 was 357.57%, which is well above the regulatory threshold of 80%.

HQLA primarily included government securities in excess of minimum Statutory Liquidity Ratio (SLR), the extent allowed under the Marginal Standing Facility (MSF) and the Facility to Avail Liquidity for LCR (FALLCR). Additionally, cash, balances in excess of cash reserve requirement with RBI & the overseas central banks and marketable securities issued by foreign sovereigns form part of level 1 HQLA.

For the purposes of LCR computation, the Bank has considered all inows and outows that may have a quantiable impact under the liquidity stress scenario.

The average weighted and unweighted amounts have been calculated considering simple average.

(Rs. in Crores)

Liquidity Coverage Ratio (LCR)

Quarter Ended

June 30, 2019

Quarter Ended

September 30, 2019

Quarter Ended

December 31, 2019

Quarter Ended

March 31, 2020

Total

Unweighted

Value (average)

Total

Weighted

Value

(average)

Total

Unweighted

Value

(average)

Total

Weighted

Value

(average)

Total

Unweighted

Value

(average)

Total

Weighted

Value

(average)

Total

Unweight

ed Value

(average)

Total

Weighted

Value

(average)

High Quality Liquid Assets

1 Total High Quality Liquid

Assets (HQLA) 913.97 942.57

1,046.76 1040.39

Cash Outflows

2

Retail deposits and

deposits from small

business customers, of

which:

(i) Stable deposits 806.06 40.30 826.24 41.31 859.74 42.99 850.85 42.54

(ii) Less stable deposits 2,496.79 249.68 2,651.28 265.13 2,768.09 276.81 2859.65 285.97

3 Unsecured wholesale

funding, of which:

(i)

Operational deposits (all

counterparties) 0.01 0.0 0.13 0.03 0.11 0.02 0.36 0.02

(ii)

Non-operational deposits (all

counterparties) 305.42 69.46 270.26 74.87 459.15 108.59 275.24 112.25

(iii) Unsecured debt - - - - - - - -

4 Secured wholesale funding - - - -

5 Additional requirements, of

which - -

(i)

Outflows related to derivative

exposures and other

collateral requirements

- - - - - - - -

(ii) Outflows related to loss of

funding on debt products - - - - - - - -

(iii) Credit and liquidity facilities 219.18 18.60 189.87 15.28 210.32 14.78 193.95 16.10

6 Other contractual funding

obligations 30.53 30.53 51.04 51.04 36.94 36.94 66.55 66.55

7 Other contingent funding

obligations 36.31 1.17 32.90 1.07 32.34 1.05 29.59 0.95

8 Total Cash Outflows 409.74 448.73 481.18 524.38

Cash Inflows

9 Secured lending (e.g. reverse

repos) 82.72 82.72 37.07 37.07 198.33 198.33 34.42 34.42

10 Inflows from fully performing

exposures 25.78 25.78 28.76 28.76 45.14 45.14 56.46 56.46

11 Other cash inflows 34.17 23.57 42.44 31.84 128.91 118.32 153.11 142.54

12 Total Cash Inflows 142.67 132.07 108.27 97.67 372.38 361.79 243.99 233.42

13 Total HQLA 913.97 942.57 1,046.76 1040.39

14 Total Net Cash Outflows 277.67 351.06 119.39 290.96

15 Liquidity Coverage Ratio (%) 329.16% 268.49% 870.16% 357.57%

- 98 -

The table below sets out the average LCR of the Bank for all the four quarters of nancial year 2018-19

(Rs. in Crores)

Liquidity Coverage Ratio (LCR)

Quarter Ended

June 30, 2018

Quarter Ended

September 30, 2018

Quarter Ended

December 31, 2018

Quarter Ended

March 31, 2019

Total

Unweighted

Value (average)

Total

Weighted

Value

(average)

Total

Unweighted

Value

(average)

Total

Weighted

Value

(average)

Total

Unweighted

Value

(average)

Total

Weighted

Value

(average)

Total

Unweight

ed Value

(average)

Total

Weighted

Value

(average)

High Quality Liquid Assets

1 Total High Quality Liquid

Assets (HQLA) 681.28 688.45 743.77 827.27

Cash Outflows

2

Retail deposits and

deposits from small

business customers, of

which:

(i) Stable deposits 710.13 35.51 724.53 36.23 759.32 37.97 778.22 38.91

(ii) Less stable deposits 1,960.50 196.05 2,065.25 206.53 2,239.50 223.95 2,344.99 234.50

3 Unsecured wholesale

funding, of which:

(i)

Operational deposits (all

counterparties) 0.01 - 0.07 0.01 0.10 0.02 0.01 -

(ii)

Non-operational deposits (all

counterparties) 196.57 34.42 152.68 29.14 291.92 50.95 213.75 53.07

(iii) Unsecured debt - - - - - - -

4 Secured wholesale funding - - - -

5 Additional requirements, of

which - -

(i)

Outflows related to derivative

exposures and other

collateral requirements

- - - - - - - -

(ii) Outflows related to loss of

funding on debt products - - - - - - - -

(iii) Credit and liquidity facilities 193.20 15.96 214.73 16.10 237.52 16.16 190.89 14.57

6 Other contractual funding

obligations 18.23 18.23 81.59 81.59 33.96 33.96 52.30 52.30

7 Other contingent funding

obligations 27.72 0.85 33.33 1.06 40.83 1.30 42.12 1.35

8 Total Cash Outflows 301.02 370.66 364.31 394.70

Cash Inflows

9 Secured lending (e.g. reverse

repos) 79.62 79.62 16.67 16.67 99.64 99.65 17.00 17.00

10 Inflows from fully performing

exposures 17.11 17.11 19.73 19.73 22.85 22.85 24.99 24.99

11 Other cash inflows 39.97 15.75 57.82 33.60 59.36 35.14 65.96 50.83

12 Total Cash Inflows 136.70 112.48 94.22 70.00 181.85 157.64 107.95 92.82

13 Total HQLA 681.28 688.45 743.77 827.27

14 Total Net Cash Outflows 188.54 300.66 206.67 301.88

15 Liquidity Coverage Ratio (%) 361.35% 228.98% 359.88% 274.04%

39. Comparative Figures

Figures for the previous year have been regrouped wherever necessary to conform to the current year's

presentation

- 99 -

OUR PARTNERS

- 100 -

PI Ventures LLP

Haryana

Punjab

133

Rajasthan

02

150

New Delhi

04

BRANCH NETWORK

- 101 -

CAPITAL SMALL FINANCE BANK LIMITEDrdMIDAS Corporate Park, 3 Floor, 37, G.T. Road, Jalandhar–144001, Punjab

Tel.:0181-5051111, 5052222 | Fax: 0181-5053333

E-mail : [email protected]: U65110PB1999PLC022634

csfb annual report 2019-2020

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